Uncertainty regarding the timing of interest rate hikes by the US Federal Reserve has convinced F&C’s head of multi asset Paul Niven to move his global high yield position from overweight to neutral.
Despite this, high yield bonds continue to look attractively valued owing to their relatively low interest rate sensitivity and the generated income they offer, according to Niven.
Niven says: “Interest rates are expected to remain low for some time yet, thus supporting the demand for high yield although issuers by energy companies pose a risk to the sector.”
Meanwhile, Niven is confident the strong showing from the US looks set to continue into 2015.
“The US is currently performing well, with growth benefiting from rising consumption, higher capital expenditure by companies and a more buoyant housing market,” he says.
“With rapid employment growth possibly bringing with it higher wages too, investors are becoming increasingly confident that the recovery will soon reach a point where it is self-sustaining.”
Niven notes that while there are reasons to be positive about China for the year ahead, slowing annual growth rates should make investors cautious.
He says: “We expect that GDP will grow by around 7 per cent in 2015 as the country continues rebalance away from investment and export sectors. It is noticeable, however, that the stockmarket has been moving ahead regardless.
“Having been a long-term underperformer, Chinese shares have been doing very well on the back of monetary easing and a crackdown on the shadow economy. We are encouraged that the likes of China, India and Mexico are continuing to implement important structural reforms. Nevertheless, we retain our neutral stance.”
Regarding asset allocation, the strategy will remain neutral in emerging market equities whilst structural reforms take place. Niven will also maintain an underweight position on commodities.
“We maintain our underweight on Commodities as the strong dollar is negative for commodities and iron ore prices have tumbled on global growth concerns,” he adds.