“Elsewhere, Japan remains a ‘value’ market but we should not ignore the potential of secular growers there,” Podger continued. “Having profited from both domestic reflation plays and exporters we are now on the lookout for domestic growth names which have lagged similar stocks elsewhere in the world. “Continental Europe has emerged as the loser out of political events this year and faces further election uncertainties in coming months. Market valuations there remain polarised, with defensive stocks still trading at rich valuations and cyclicals reflecting pockets of value. Here we currently favour corporate change situations and infrastructure spending beneficiaries.”
The attraction of US assets is not confined to equities, according to some.
“The US high-yield corporate bond market, even after an impressive rally in 2016, offers one of the few opportunities for an attractive return in today’s environment of low interest rates, with a ‘yield to worst’ of 6.4%,”said Ian Pizer, Aviva head of investment strategy and co-fund manager on the AIMS Target Return and Target Income Funds. “It should do especially well if Trump’s pro-growth rhetoric were to translate into stronger US economic growth in 2017. Fiscal stimulus, lower taxes and reduced regulations are potential tailwinds for the US economy. High-yield debt has equity-like characteristics, which means it tends to benefit from a ‘risk-on’ environment but with lower volatility.”
“Trump’s victory has stoked expectations of higher inflation and interest rates. But while high-yield bonds are not immune to rising rates, the sector’s relatively low duration make it less sensitive to this threat,” Pizer continued. “In the early stages of rate-hike cycles, credit-spread compression has historically helped to cushion the blow of higher rates. “Although default risk is historically the largest hazard of investing in high yield bonds, we expect defaults to decline in 2017. That is largely because of the stabilisation in commodity prices, with the price of crude oil having nearly doubled from February’s low. The main risk to the trade is that US economic growth begins to slow, perhaps because the US central bank raises interest rates faster than we anticipate in order to combat a sharp pick-up in inflation.”
So, load up on US assets and watch the returns roll in next year? If it was really as simple as that most of the investment industry would be out of a job.
