Equities Are Still Cheaper Than Bonds

PERSPECTIVES: Tapering is not tightening but valuations continue to favour equities over bonds, says Threadneedle's Mark Burgess

Threadneedle Investments 1 August, 2013 | 1:33PM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Mark Burgess, Chief Investment Officer at Threadneedle Investments, looks at the past six months and how that shapes Threadneedle’s investment outlook and current asset allocation.

At the start of the year, we forecast a challenging macroeconomic outlook for 2013, continued downside risks, and we expected interest rates to stay lower for longer. In terms of asset allocation, we were positive on equities relative to bonds on valuation grounds, and saw attractions in yielding assets. Within equities, we preferred Asia, emerging markets and the UK to Europe and the US.

In the first half of 2013, developed market equities have outperformed emerging markets, while fixed income has performed poorly, except for high yield bonds, which have benefited from their shorter duration characteristics. After a strong first quarter, risk assets rose through to mid-May before an aggressive bout of profit taking hit most financial markets. The trigger for this was the US Federal Reserve (Fed), which commented that it may ‘taper’ its bond purchase programme if economic data remains strong.

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Threadneedle Investments  actively manages £84.0 billion of assets (at 31 March 2013), investing on behalf of individuals, pension funds and corporations.

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