NEWS
25 Feb 2025 - What happens after the first RBA rate cut?
24 Feb 2025 - Magellan Global Quarterly Update
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Magellan Global Quarterly Update Magellan Asset Management January 2025 |
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Arvid Streimann explores significant market trends and explains how the global strategy is set to take advantage of new opportunities while keeping an eye on potential risks. Arvid also talks about the recent adjustment to the portfolio's maximum cash level and comments on the market impact following Trump's election. |
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Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Core Infrastructure Fund, Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged) Important Information: Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. |
24 Feb 2025 - 2024 Year in Review
21 Feb 2025 - Michael Steele: Cyclical small caps poised for comeback
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Michael Steele: Cyclical small caps poised for comeback Yarra Capital Management February 2025 Cyclical small companies may be among those most likely to outperform in an anticipated small cap recovery from the doldrums of the past few years. Local small caps as a whole struggled last year as higher interest rates and slowing economic activity depressed demand for their goods and services, while simultaneously increasing their debt burden. In fact, the S&P/ASX Small Ordinaries Accumulation Index has underperformed the top 100 companies by 30 per cent over the past three years as investors have instead focused on the stellar gains in the US sharemarket and a small number of growth companies more generally. That trend is now expected to reverse and there's more to this recovery than just an anticipated reversion to the mean. Earnings growth from small companies could be around 10 per cent per annum over the next two years, compared to an average of just 2-3 per cent for the top 100 ASX stocks. Cyclical small caps are primed to be among the standouts. The multiple rate cuts expected in Australia - potentially beginning as soon as February - will finally support a recovery in their customer demand and obviously reduce the cost of servicing debt. To put the potential of this cohort into perspective: a tidy 8.5 per cent gain in the overall Small Ords in 2024 was driven by just the top 10 stocks in the index, only one of which was a cyclical company. The top 10 included family tracking app Live360, Telix Pharmaceuticals and buy now, pay later provider Zip Co. The sole cyclical in the list was CSR - and its momentum was partly attributable to its $4.3 billion takeover by French building products giant Saint-Cobain. Cyclical stocks best-placed to benefit from a more robust economic environment include companies that can increase earnings from more than just the economic cycle. Management initiatives that boost market share or reduce operating costs, for instance, will play an equally critical role in their recovering fortunes. Examples of companies in this category include construction materials and equipment services business Maas Group (ASX: MGH), steel distributor Vulcan Steel (ASX: VSL) and outdoor advertising company oOh! Media (ASX: OML). All are cyclical businesses with strong management teams and the potential for market share gains and margin expansion. But it's the resources arena that we believe may deliver some of the best small cap performers of the year. A combination of the cyclical drivers above and structural tailwinds unique to the resources sector provide a solid foundation for potential gains. Small resource companies have suffered over several years due to concerns about the prospects of economic growth in China. Their share price gains have been further stymied by the markets' short-term focus on lower-than-expected stimulus measures from the Chinese government and the prospect of tariffs being imposed by the new Trump administration. Both the latter factors are likely overstated. The reality is that some of China's stimulus measures are already bearing fruit, and the Chinese government has sent strong signals that it would enact more measures if required to reignite the country's economy. In terms of China's export trade, the potential blow of any tariffs implemented by the Trump administration would be softened by the fact that only 15 per cent of its exports are to the US. Tariffs on that market would not impact its exports to other major trading partners such as Europe, Japan and South Korea. Beyond geopolitics, the long-term growth in demand for commodities required for decarbonisation is not reflected in the current valuation of small cap resource stocks. Copper, in particular, is a commodity that will experience increased demand as the push towards net zero economies gathers pace. The volume of copper per electric vehicle, for example, is up to four times more than required for an internal combustion engine car. It is also an essential component of both electrical transmission capacity and renewable energy infrastructure. The wide range of applications for copper across different elements of the decarbonisation process, as well as the broader economy, mean this demand is unlikely to be impacted greatly by any uncertainty generated by the Trump administration's climate policies. In fact, conservative forecasts from BHP suggest that copper demand will increase by 70 per cent by 2050 - but supply is highly constrained and new copper mines face significant hurdles to establish. Companies such as Capstone Copper (ASX: CSC) may be well-placed to capitalise on the anticipated increased demand. The dual-listed company - which sits on the Australian and Canadian bourses - has diversified operations across the US, Mexico and South America. Its production volume is likely to increase by up to 100 per cent over the next five years and its costs are expected to fall as those volumes increase and new mines are brought online. And it's not just resource companies themselves that could benefit from the above dynamics. Mining service companies will also be at an advantage if higher copper and gold prices lead to a cyclical recovery in exploration activity. Mining tech company Imdex (ASX: IMD) is one leading example in this category. Author: Michael Steele, Co-Head of Small Cap Equities |
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Funds operated by this manager: Yarra Australian Equities Fund, Yarra Emerging Leaders Fund, Yarra Enhanced Income Fund, Yarra Income Plus Fund |
20 Feb 2025 - Trump effect, policy uncertainty and government spending - Key themes for bond markets in 2025
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Trump effect, policy uncertainty and government spending - Key themes for bond markets in 2025 JCB Jamieson Coote Bonds January 2025 As we enter 2025, investors are navigating a shifting landscape shaped by evolving central bank policies, economic uncertainty, and fiscal dynamics. While challenges remain, there are also opportunities on the horizon. Charlie Jamieson, Chief Investment Officer, explores the key themes set to influence bond markets this year from interest rate movements to government spending and policy direction. Below is a brief summary. Summary of key themes for bond markets in 2025Recap of 2024: The bond market faced underwhelming performance despite global rate cuts. A key driver of this was a sell-off in long-dated bonds, spurred by expectations of continued US fiscal spending. In Australia, the Reserve Bank of Australia (RBA) held interest rates steady throughout 2024 but is expected to begin cutting in February 2025, which should provide support to bond markets given current valuations. Global economic outlook: The outlook for 2025 remains divided, particularly with the Trump administration now in its second term. The US economy continues to perform well, spurred on by the "Trump effect" of strong business optimism. However, economic conditions in the rest of the world are weaker, with Europe, Canada, Australia, and New Zealand all expected to cut rates further. Policy uncertainty: While markets had hoped for more clarity, there is still little certainty around economic policy direction. A major area of concern is the potential for increased tariffs, which could reintroduce inflationary pressures. Although not yet confirmed, the expectation is that tariffs will be implemented and may rise throughout the year. This, combined with Trump's stated preference for lower inflation and interest rates, creates a complex policy landscape that could have significant market implications. Fixed Income performance^: For fixed income investors, returns are expected to be relatively solid. Cash returns should remain in the 3-4% range, while bond market performance could reach 5-6%, depending on yield movements. Government spending and fiscal policy: In both the US and Australia, public sector spending has been a major driver of economic activity. However, with concerns over inflation and fiscal sustainability, there is increasing pressure to rein in spending. As investors navigate 2025, market divergence, policy uncertainty, and fiscal decisions will be key factors shaping the bond market outlook. ^ Recipients should not rely on this information in making investment decisions. The information here is illustrative and shall not be relied upon as a promise or representation of past or future performance. All investments contain risk.Charlie Jamieson, Chief Investment Officer Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged) |
19 Feb 2025 - Tim Hext: Inflation data 'good news' for the RBA
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Inflation data 'good news' for the RBA Pendal January 2025 |
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AUSTRALIA'S latest quarterly inflation figures offer good news to both the Reserve Bank and the Albanese government. Headline CPI came in at 0.2% for the quarter, now 2.4% year-on-year (yoy). Trimmed mean inflation, our version of underlying inflation, came in at 0.5% and 3.2% yoy. In November, the RBA had forecast inflation at 2.6% and trimmed mean at 3.4% for the end of 2024, so these numbers are a 0.2% improvement on recent expectations. More important, though, is the significant improvement in several key areas that show it is not just a story of government subsidies artificially lowering inflation. Subsidies directly likely only kept trimmed mean inflation around 0.1% lower as the large falls are trimmed away. New dwelling costs were one of the poster children for runaway inflation through the pandemic. Labour shortages and massive homebuilder subsidies saw 10% annual growth for several years. Prices have now plateaued and even slightly fell in the quarter, as it has shifted from a sellers' market to a buyers' market. These constitute 8% of the CPI basket so they can make a big difference. The other key area of housing is rents, which are 6% of the CPI basket. These went up only 0.6% on the quarter and were dampened by a 10% increase in rental assistance to the 1.5 million people who receive it. Nevertheless, the underlying pulse for rents is now heading nearer 5% than the 8-10% of the past few years. These two key areas are partly behind services inflation, falling from 4.6% to 4.3%. If services (two-thirds of CPI) can settle around 4% with goods prices (one-third of CPI) nearer 1%, then the RBA should be more confident of medium-term inflation being within its 2-3% target, albeit more at the top end of its range. Finally, as you would expect with falling inflation, the number of components rising faster than 3% is now down to 37% from around 85% in late 2022. This graph, courtesy of NAB, shows that only 42% of items are over 2.5%. This is not weighted, but speaks to the breadth (also called diffusion) of price disinflation.
All this leaves the door very wide open for an RBA cut in February. The market is now 90% priced and has another rate cut priced by May and a third by August. We agree with the first two, but caution against pricing too many more beyond that. Inflation will push back nearer 0.7% in Q1 CPI, due in late April. However, large government spending here, both Federal and State, will continue to keep a solid footing under growth and employment. The RBA will need to do a twist around its estimate of full employment. Its rates-on-hold narrative was based on excess demand versus supply in employment markets, given the 4% unemployment rate. Its estimate for full employment, where demand and supply are in balance, was nearer 4.5%. However, with wage growth moderating to 3.5%, it points to full employment being nearer the current levels of 4%. Expect some commentary on this. We continue to favour steeper curves and modest overweight duration positions, focusing on one to three-year part of the government yield curve as we expect both short-term bond yields to fall, while longer-end bond yields may rise or stay the same. If not for the high level of uncertainty out of the US, our long duration views would be more confident. Perhaps the biggest sigh of relief on the release of today's numbers will have come out of Canberra. A pre-election rate cut, possibly even two, would be welcomed by young people living in the mortgage belts, and often swing seats, of Australia. In what is shaping up as a close election, any good news on the cost of living will be grabbed by Albanese and Chalmers. Author: Tim Hext |
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Funds operated by this manager: Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Multi-Asset Target Return Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Pendal Sustainable Australian Share Fund, Regnan Credit Impact Trust Fund, Regnan Global Equity Impact Solutions Fund - Class R |
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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com |
18 Feb 2025 - Glenmore Asset Management - Market Commentary
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Market Commentary - January Glenmore Asset Management February 2025 Globally, equity markets were positive in January. In the US, the S&P 500 rose +2.7%, the Nasdaq increased +1.6%, whilst in the UK, the FTSE was up strongly, rising +6.1%. Domestically, the ASX All Ordinaries Accumulation index outperformed its US peers, rising +4.4%. On the ASX, the top performing sectors were gold and financials, whilst defensive sectors such as utilities and telecommunications underperformed. A subdued inflation data point in Australia released in late January boosted investor sentiment, increasing the likelihood of the Reserve Bank of Australia (RBA) cutting rates in the near term. Bond markets were relatively quiet in January. The US 10 year government bond yield was slightly up (~ +2 basis points) to close at 4.53%, whilst in Australia, the 10 year bond yield increased +6 bp to close at 4.43%. Funds operated by this manager: |
17 Feb 2025 - Starting Points Matter
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Starting Points Matter Airlie Funds Management January 2025 |
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Understanding the three components of shareholder returns. I learned a valuable lesson in July 2022, the last year the S&P/ASX 200 index posted a negative return, that starting points matter. I had gone on leave to have my second child in December 2021 as markets were making all-time highs, the cash rate was on the floor (and the RBA was promising to keep it there for years) and a raft of IPOs were hitting the ASX.When I returned six months later, it was like returning to a different planet: the S&P/ASX 200 had fallen 12%, the Fed and the RBA were aggressively raising rates, and what was most notable to me was the absolute consensus bearishness that had taken hold. Things were bad, and they were only going to get worse. This bearish view had become so dominant that we actually chose the title 'Beware the Dominant Narrative' for our national roadshow that year, suggesting the fundamentals facing most Australian companies weren't actually that terrible. If we take that starting point of July 2022, the S&P/ASX 200 has gone on to return 38% inclusive of dividends, an impressive return over two-and-a-half years. What is interesting about this strong return is that, in my view, it was a function of the starting point. In any year, your total shareholder return as an investor is driven by three components: earnings growth (how much did earnings per share change by?), dividends, and the change in the price/ earnings (P/E) multiple. It is this last component I find the most interesting: how much are investors willing to pay, on average, for a particular earnings stream? If we look at these three components at an index level, as in the chart above, the P/E multiple is the best guide we have to the 'psychology' of the market: when market participants feel bearish, as they did in CY22, the market P/E contracts. Despite delivering 18% earnings growth, the S&P/ASX 200 return was flat because of this sizeable de-rate. When market participants feel things are improving, the P/E expands. As you can see in the chart above, the bulk of the 38% index return generated in the last two-and-a-half years has come from the P/E re-rating rather than earnings growth. In fact, over the last two years, earnings have declined 11%, while the P/E has re-rated by 27%. Whether or not this is sustainable is anyone's guess, albeit I would speculate that actual earnings growth is going to be needed for further returns from here. If we do get a rate cut or two in 2025, such earnings growth should be achievable, although it is interesting that our market has rerated over 2024 in line with the US, which enjoyed 100bp of rate cuts over the year, despite the lack of falling interest rates in our own economy. So now we have a new starting point, 1 January 2025, and it's a very different one. The average P/E multiple of the S&P/ASX 200 has re-rated from 12.7x in July 2022 to 17.7x today. In particular, the re-rating in the Big Four banks, which collectively drove almost 40% of the return of the ASX over the last two years, has rendered the 24% of the S&P/ASX 200 index, which they represent as overvalued, in our view, considering their anaemic profit growth outlook. Does this mean it's a bad time to invest? Not necessarily. We are big believers in the age-old saying, "It's time in the market, not timing the market" that drives long-term wealth creation in investing in equities. That said, we are tilting the portfolio towards businesses where the starting point reflects depressed, rather than elevated, expectations. A number of these investments are positions we established in 2024: BlueScope, IDP Education, IGO, The Lottery Corporation - all businesses where expectations are muted. Others are positions we've added to as share prices have fallen: Ampol on weak refining margins and production issues, BHP as Chinese stimulus disappoints, CSL as the Vifor acquisition has fallen short of expectations. What these businesses have in common are strong balance sheets and good management teams, as well as the ability to generate good returns through the cycle. In an expensive market, we believe positioning the portfolio towards businesses with strong financial characteristics and somewhat "beaten up" valuations should prove a good starting point for decent long-term returns. By Emma Fisher, Deputy Head of Australian Equities & Portfolio Manager Funds operated by this manager: Airlie Australian Share Fund, Airlie Small Companies Fund Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Airlie will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
14 Feb 2025 - AI Shake-Up: DeepSeek's Shocking Impact on Nvidia & Big Tech
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AI Shake-Up: DeepSeek's Shocking Impact on Nvidia & Big Tech Marcus Today January 2025 |
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More downloads than ChatGPT, Nvidia down 17%, and big questions about the future of AI. But was this just a market overreaction or a real turning point? Meanwhile, the Fed, inflation, and another week of Trump's 'Revolution of Common Sense' continue shaping global markets. From AI disruption to tariffs, rate cuts, and shifting investor sentiment--where does it all lead? Markets react, but the bigger picture is still unfolding. |
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13 Feb 2025 - Fixed income: poised to shine in 2025?
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Fixed income: poised to shine in 2025? abrdn January 2025 It's only January, and already 2025 is shaping up to be another complex and volatile year. Politics, evolving macroeconomics, and divergent monetary policy will dictate sentiment. The threat of a Trump-inspired trade war also looms large. We think this backdrop sets the stage for fixed income to deliver. A Quick recapIn early 2024, concerns arose that headline inflation was proving to be stickier than expected. Nonetheless, central bank rate cuts finally materialised in the second half of the year, as anticipated. In the last two months, Donald Trump's election victory pushed medium and long-dated Treasury yields significantly higher due to fears that his economic policies would be inflationary. Geopolitical tensions also added to the upward pressure on the yield curve. Global economic growth was more resilient than forecast, with strong corporate profitability supporting credit spreads, which tightened significantly over 2024. These developments had a mixed impact on fixed-income returns, with pure government bond strategies lagging the positive performance from corporate and emerging market strategies. The higher all-in yields now available have heightened the attractiveness of fixed income. Several additional themes should further bolster the case for fixed-income investments. Key themes for 2025We expect monetary policy to diverge in developed markets. The US Federal Reserve has already pared back its rate-cutting cycle as it waits to see the impact of Trump's policies. Market consensus ranges from zero cuts to two in the latter stages of the year. By contrast, the European Central Bank, arguably behind the curve, looks set to cut deeper and quicker than previously forecast in the face of mounting economic headwinds. Stubborn UK inflation had given the Bank of England reason to pause. However, January's numbers were weaker than expected, opening the way for potential reductions. Yields and spreadsGlobal IG bonds' all-in yields across developed and emerging markets are attractive. The yield to maturity on the Barclays Global Average Corporate Index is currently 4.8% compared to the historical average of 3.1% (going back to December 2004). When comparing the past 10 years, the current yields available for all the main fixed income sub-asset classes are also well above the long-term average (see Chart 1). This should appeal to those coupon-clippers looking for an attractive income. Higher yields also often lead to tighter spreads outside a recession. That said, the prospects for further spread compression could be more limited now that they are below long-term averages. Still, there could be some scope for spreads to grind lower, particularly on a selective basis. Economic sweet spotTurning to GDP, history shows that modest economic growth is typically better than high growth for IG credit. Starting in 1948, periods of 1-2% growth resulted in excess returns for IG. High growth (above 3%) was relatively poorer for IG. That's because, during phases of robust growth, focus tends to shift towards shareholder value at the expense of bondholder value. As it stands, we think 2025 will deliver modest economic growth, suggesting a good environment for IG credit. A comparative advantageFixed income stands out compared to other asset classes on a risk and relative valuation basis. With strong fundamentals, higher yields, lower volatility, and a position higher up the capital structure, fixed income presents a lower-risk and potentially higher-return investment option to regular stocks. At the same time, five-year US Corporate yields are above the S&P 500 earnings yield (5.2% versus 3.4% [1]), indicating attractive relative valuations. Moving beyond cashThere's also a compelling case for investors to transition from cash and money market funds into fixed income. With the ability to capture over 100 basis points in excess yield, fixed income offers a tangible opportunity for investors to enhance their returns while effectively managing risk. The potential upside could be significant. By our estimates, there's around US$7 trillion sitting on the sidelines, poised to enter the market. Final thoughts...The 'reasons to believe' in fixed income are clear. Yields are historically attractive, and fundamentals are strong. In a complex and unpredictable world, the asset class has a safety and valuation advantage over riskier assets like equities. We believe embracing the fixed income opportunity could unlock significant value for portfolios, marking a timely strategic move in a world of turbulent economic, political, and market dynamics.
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Funds operated by this manager: abrdn Sustainable Asian Opportunities Fund, abrdn Emerging Opportunities Fund, abrdn Global Corporate Bond Fund (Class A), abrdn International Equity Fund, abrdn Multi-Asset Income Fund, abrdn Multi-Asset Real Return Fund, abrdn Sustainable International Equities Fund |
