Knowledge and Insight - Investments

Ten-year gilt yields rose steadily in the first two months of 2018 to a high of more than 1.6% (figure 6). They fell back slightly from late February, but even at these levels UK government bonds are once again looking like a viable alternative to holding cash in portfolios.

We have long believed that with yields so low, gilts offered little advantage over cash for a typical diversified portfolio and were vulnerable to capital losses. 

The threat of higher inflation and rising interest rates spooked global stock markets in February and pushed up government bond yields. We expect the trend of rising yields to persist and be a dominant investment theme over the coming year, with implications for equities. 

After almost 18 months without a setback, investors forgot what volatility felt like. That complacency has now been shattered, but sound underlying business conditions remain intact. That’s no bad thing. 

A handful of tech stocks are dominating global markets like it’s 1999. But this time could their lofty valuations be based on something more concrete? 

Emerging markets (EMs) threw a ‘taper tantrum’ in 2013 when the US Federal Reserve (Fed) mentioned the idea of gradually reducing its quantitative easing programme. Bond yields increased dramatically and equities suffered as global investors lost their appetite for risk and began to withdraw their money. 

Political uncertainty has dominated global events over the past couple of years. Surprise voting patterns have delivered Brexit and President Trump followed by an indecisive UK general election result. A minority government is now negotiating the terms of the divorce from the European Union (EU).

Infrastructure investments have attracted lots of attention from yield-hungry investors in the new world of ultra-low interest rates. But this growing demand, chasing after a limited supply of projects, has made attractive infrastructure investments harder to find.

European equities have been in fashion this year, but their popularity may be waning as valuations become less attractive and signs emerge that economic growth may have peaked. 

Gold has been used as a form of currency and store of value since long before paper currency was invented and adopted across the world. Today this precious metal divides opinion among investors like few other asset classes. At Rathbones, we prefer to simply examine the evidence and assess its properties.