The Big Picture: Global Asset Allocation 2024 Q3

We think politics may bring volatility and the global economy is fragile, with stronger growth in some areas balanced by a slowing US.  However, more than 25 central banks have cut rates in 2024 (not the Fed), bringing hope of recovery.  We believe a lot of the better news is already priced into markets and reduce investment grade (still Overweight) and high yield (to zero) within our Model Asset Allocation, while boosting government bonds and real estate (both Overweight).  Regionally, we still prefer European and emerging market (EM) assets. 

Model asset allocation 

In our view: 

• Cash rates remain competitive on a risk-adjusted basis. We remain Overweight.
• Bank loans also offer an attractive risk-reward trade-off. We stay at the Maximum.
• Government yields have risen and could fall over the coming months. We go Overweight.
• Real estate (REITS) has the potential to produce the best returns. We boost to the Maximum.
• Commodities have recovered but there may be more to come. We remain Overweight.
• Corporate investment grade (IG) is now less compelling than it was. We reduce but stay Overweight.
• Corporate high yield (HY) spreads are too tight. We reduce to Zero.
• Equities have performed very well and potential seems limited. We remain Underweight.
• Gold may be helped by falling yields and a weakening dollar but is expensive. We remain at Zero.
• Regionally, we favour Europe and EM.
• US dollar is likely to weaken and we maintain the hedge into JPY.

Our best-in-class assets (based on 12m projected returns) 

• EM government bonds
• US bank loans
• China equities