CIO Insights 1Q24: Shifting Currents
For Chief Investment Officer Hou Wey Fook, the shifting currents signal the importance of putting cash to work in multi-asset portfolios
Chief Investment Office14 Dec 2023
  • Slower economic growth & inflation rate point to a peak in US rates
  • Favour IG corporates for the best risk-reward and include measured exposure to Private Credit funds
  • Favour US Tech for quality growth & Asia Equities for deep value. Downgrade dividend-paying stocks
  • Shift Equities to underweight, stay overweight Bonds and Private Assets
  • Gold's resilience underpinned by peaking rates & dollar amid heightened geopolitical risk
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Dear valued clients,

We had made a bold call since the start of 2023 for investors to put cash to work with “The Return of 60/40”.

Our call has paid off. Despite headwinds from geopolitical uncertainties and recession risks, our Barbell Strategy, comprising outsized exposures to income-generating Bonds on one end and secular-growth Equities on the other, recorded 10.7% of gains for 2023 (as of 1 Dec).

From the time the Fed started policy tightening, a total of 525 bps of hikes was done over 16 months, one of the fastest in its history. Interest rates, being the discount factor for valuing future cash flows, have always been the key determinant for financial asset performance, thus explaining the challenging conditions for Equities and Bonds in periods of heightened rates.

Now, we see a peaking of US rates as economic data on growth and inflation point to a softening. As a result, we believe 2024 will be a supportive environment for risk assets.

The sharp divergence between US Big Tech stocks or the “Magnificent 7” versus the broad market index over 2023 has propelled strong outperformance of our Barbell Portfolio over underlying benchmarks.

We expect this to continue. Elevated bond yields today pose a high bar for Equities to clear. Apart from quality Consumer Discretionary and Technology-related companies, earnings growth of most companies in the other sectors will be challenged by > 6% yields that Bonds can offer.

Hence, it will be no surprise that growth stocks will continue outperforming value stocks, thus reinforcing the efficacy of our Barbell Strategy into 2024.

In this publication, we also highlight the theme of next generation infrastructure and luxury, along with the opportunities that abound in these sectors.

I wish you a prosperous year of investing.

Hou Wey Fook, CFA
Chief Investment Officer

Download the PDF to read the full 1Q24 CIO Insights report.


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