Raj Manon

While the US remains the largest component of our equity exposure, we have reduced exposure to mega-cap technology companies and increased exposure to undervalued areas of the market. This reflects our expectation that companies trading on more attractive valuations will perform well as interest rates fall further and the global economy continues to prove resilient. We also anticipate that US President Donald Trump’s administration will add to the supportive backdrop by introducing voter-friendly policies in the run-up to the US midterm elections in November.

We have modestly increased our exposure to Japanese equities. In our view, this market remains attractively valued and companies have the potential to increase their earnings. In addition, industrial companies and manufacturers are well represented in the Japanese market, offering diversification benefits at a time when exports could rise against a backdrop of improving economic conditions.

Our equity positioning elsewhere remains broadly unchanged, with a continued preference for balanced regional exposure and a focus on quality, resilient companies.

Infrastructure

We continue to see an opportunity in infrastructure companies and so we have maintained our position in this asset class, which we expect to benefit from falling interest rates. Infrastructure projects – such as airports, toll roads and pipelines – are long-term in nature and companies investing in them tend to perform well when interest rates are falling, which reduces the cost of financing. With global economic growth showing signs of modest slowing and inflation easing, central banks are positioned to continue cutting interest rates, creating a supportive environment for infrastructure companies.

Bonds

We continue to favour higher-quality government bonds and have increased our allocation. In our view they offer twin attractions: appealing yields and the likelihood they will benefit from further interest rate cuts. The case for bonds is further reinforced by the fact that tariffs have so far proved less inflationary than feared and because economic growth is holding up better than expected.

However, we are mindful that investor concerns about governments’ fiscal policies could have a negative impact on longer-dated government bonds.

In corporate bonds, we have maintained our reduced exposure to high yield bonds. This is because we do not believe the extra yield currently available is sufficient to compensate for the increased risk they present, compared to investment grade.

We have added to our emerging market bond holdings, because we believe they can offer diversification away from heavily indebted developed economies, without sacrificing quality. We see opportunities in a number of emerging market countries, where bond valuations are attractive and real yields are appealing. A weakening dollar is also supportive.

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