Within the core part of our balanced portfolio, we cover traditional liquid assets such as equities, fixed income and commodities. The chart shows how we would currently design a balanced portfolio, including alternative asset classes.1
Despite high levels of geopolitical and other risk, equities are likely to maintain their appeal, with further gains in prices possible over the remainder of 2015 – although the short-term outlook could be volatile. Dividend payers may appear particularly attractive when dividend levels are seen in the context of low yields available from fixed-income investments. European equities may be favored over U.S. equities, particularly given the latter’s relatively high valuations. Within emerging-market equities, we would prefer Asia.
Eurozone QE seems likely to hold Eurozone core yields at extremely low levels although peripherals‘ appeal could be temporarily reduced by any fallout from the Greek crisis. U.S. Treasury yields have recently moved upwards, and although they remain well below what would normally accompany buoyant GDP growth, substantial further gains look unlikely. Very low government-bond yields will encourage a search for yield, with high-yield and emerging-market fixed income obvious points of interest. Selectivity remains key in the emerging markets.
Oil prices are unlikely to rise quickly, as lower investment will take some time to have a major impact on production levels. But a modest increase in oil prices looks likely in the second half of this year. Gold may enjoy small and short-lived rallies during periods of financial-market uncertainty, but will generally trade sideways. The strong U.S. dollar will create headwinds for both oil and gold prices. Commodity prices overall have been depressed, with slower Chinese economic growth holding down demand, but some turnaround is possible later this year.