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Asset Allocation Outlook – May 2024

Multiple authors
4 min read
2025-05-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

This is a monthly snapshot of our Multi-Asset Team’s asset allocation views as of May 2024. It covers global equities, bonds and commodities and complements the more detailed analysis we share in our quarterly Multi-Asset Outlook.

Key*

1

*Please note that we use a more detailed key in our quarterly Multi-asset Outlook.

Equities

US

h

We maintain a neutral view on US equities. The S&P 500 Index appears expensive when evaluated using traditional valuation metrics, especially if real interest rates remain at their current higher levels. However, when adjusted for declining interest rates and long-term earnings growth potential driven by AI, the index appears closer to fair value.

Europe

h

We have upgraded our view on European equities to neutral. European growth appears to have troughed, with economic activity broadening out from services to manufacturing. In addition, we expect the European Central Bank to begin cutting rates as early as this month (June), which should further boost risk sentiment towards European assets.

Japan

h

We have downgraded our view on Japanese equities to neutral. Japanese equities have experienced significant outperformance relative to global equities in recent quarters. While we view the structural case as largely intact, higher valuations, monetary tightening by the Bank of Japan (BOJ) and a potentially stronger yen present near-term headwinds for relative performance. 

Emerging markets

h

Our outlook for emerging markets (EM) equities remains neutral. Cyclical and structural headwinds persist for Chinese assets. However, earnings are starting to stabilise and valuations remain attractive. Balancing these factors, we see a wide range of potential outcomes for EM equities in this environment and lean towards a neutral stance.

Government bonds

US

h

Our US rates outlook is neutral. Recent upside inflation data surprises have driven further market repricing in rates, with markets now pricing in less than two US rate cuts this year, below the Federal Reserve’s own projections of three. We think that the round trip in US 10-year yields since late 2023 presents a more balanced reflection of the outlook for US policy. 

Europe

h

We still have a neutral view on European rates. We believe disinflation across the European Union has further to go and we see significantly less risk associated with fiscal policy and term premia. However, the recent outperformance of European rates prevents us from moving to an overweight view.

Japan

h

We maintain our neutral view given our expectation that the BOJ will remain patient as it looks to normalise policy. Top-line Japanese growth remains weak, and we are seeing slowing inflation. Nevertheless, we still agree with the narrative that Japan should, at some point, phase out extraordinary monetary easing.

Credit spreads

Investment-grade credit

h

We anticipate that spreads will likely remain range-bound, with little room for further tightening. As a result, we believe that the income component (carry) will primarily drive returns this year, with little potential for capital gains, hence our shift to a marginally neutral view.

High yield

h

We have shifted to an overweight view on high-yield relative to investment-grade credit. We expect high-yield debt to benefit from better overall conditions for risky assets. While spreads remain tight, all-in yields provide a significant cushion against spread widening in the absence of a significant rise in default rates, which is not our base case.

Emerging markets

h

We have downgraded our view on EM debt to underweight, primarily due to the expected continuation of low growth in EM economies. We see more limited opportunities for tightening across EM high yield. While the return of weak issuers to the primary market has boosted sentiment, flows have been limited. Continued strength in the US dollar remains an additional headwind for the asset class.

Commodities

Energy

h

In energy markets, our view remains marginally overweight. Oil looks fairly valued, with prices in the mid US$80s. However, a positive roll yield — which reflects the lower cost of longer-dated futures — and heightened geopolitical risk warrant a more constructive stance.

Gold

h

We still have a neutral outlook on gold markets. Gold has meaningfully outperformed real rates over the recent inflationary period, limiting further price upside from here, in our view. A punitive roll yield requires a substantive price appreciation to justify any overweight.

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Disclosure

For professional and institutional investors only. All investing involves risk. Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment. If the strategies do not perform as expected, if opportunities to implement them do not arise, or if the team does not implement its investment strategies successfully, then a strategy may underperform or experience losses. Past performance is not a reliable indicator of future results and investments can lose value.

This material is prepared for, and authorised for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorised by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund.

Any views expressed herein are those of the iStrat Multi-Asset Team, are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. While any third-party data used is considered reliable, its accuracy is not guaranteed.

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

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