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Multi-manager View

Diaries in December and January are filled with presentations from different organisations where they put forward their outlook for the coming year. It may be a bit of a generalisation but, to cynical investors, the equity-oriented houses tend to be more positive than the bond-oriented houses, which could be seen as propounding a gloomy outlook to make bonds a more attractive investment.

This year is no different as far as my diary is concerned but there has been a marked departure from the pattern of previous years in that Goldman Sachs, Morgan Stanley and BlackRock among the first group have been more circumspect than I might have expected, in terms of outlook and margin for error in their predictions for 2012.

The second group, including Pimco, Soci&été Générale and Schroders, remained downbeat as expected.

Some conclusions can be drawn from this, the first being that consensus expectations are considerably lower than this time last year and markets may already be discounting a more cautious outlook.

There is an ongoing tussle between the forces of austerity, a deleveraging of public and private sector balance sheets and the reflationary actions of the central banks to support liquidity and encourage nominal growth.

Different houses have competing opinions as to which will have a greater impact in 2012 but all are of the opinion that this will contribute to bouts of higher market volatility during the year. As a result, a number are promoting the idea of making greater use of cash as an asset class that can then be deployed if there is a sharp sell in a particular asset. The eurozone continues to be perceived as the greatest influence on the global economy, which is moving, albeit slowly, in the right direction. The biggest concern is that the policies are only promoting austerity, when measures to stimulate growth are clearly also required – the consensus expects the euro currency to be weak on a trade-weighted basis.

Government bonds on almost any long-term basis are deemed too expensive but, given the backdrop of moderate economic growth, low inflation, risk-aversion, weak private demand and continued central bank purchasing, yields are not expected to rise too much in the short term. Investment greed bonds and mortgage-backed securities are a clear preference in this area.

Equities are viewed as fair value and there seems to be a preference for the UK and the US, with emerging markets making a comeback in the second half of the year and technology the favoured sector.

The consensus is more cautious – is it any surprise that risk assets have done better in the first weeks of January? – and although there will be opportunities to make money this year, you will have to be nimble in the implementation of these ideas as the market will remain volatile.

Caspar Rock is chief investment officer at Architas

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