Dynamic Planner, the UK’s leading risk based financial planning system, has analysed the data* of the 40% of the UK advice market it serves ahead of the anniversary of Consumer Duty.

In the past 12 months, Dynamic Planner has seen exponential growth in usage as its technology is increasingly adopted and utilised to solve the new demands and challenges faced by the industry. Advisers are now generating reports and undertaking reviews more frequently than ever before, with the number of reports created increasing by 100% year-on-year to over 100,000 a month in June. The demand for Annual Reviews and Cash Flow Reports has grown fastest.

Technology has enabled advisers to become more efficient, drastically reducing the time spent reviewing and creating reports: specifically for Dynamic Planner – 16 mins to generate a Review Report; 10 mins for Client Profile Reports; 19 mins for Recommendation Reports; and 28 mins for Cash Flow Reports.

Consumer Duty has put the spotlight on target markets and in the past 12 months, advisers have increasingly used the target market feature in Dynamic Planner, originally put in place to support PROD and MiFID but also aligned to Consumer Duty. Around 1 in 4 firms have now created target markets, with an average of 130 new target markets created every month. Since July 2023 over 1,500 target markets have been created with numbers peaking at the expected times of year in July 2023 ahead of the advent of Consumer Duty, followed by March ahead of the end of tax year; and November pre-Christmas. Year on year there has been a 44% increase in the number of firms using target markets for their recommendations.

In line with the 2021 FCA ‘Guidance for firms on the fair treatment of vulnerable customers’ further amplified under the lens of Consumer Duty, advice firms have completed over 5,000 of Dynamic Planner’s psychometric Financial Wellbeing Questionnaires (FWQ) with their clients over the past year. Dynamic Planner’s FWQ is designed in line with Consumer Duty and the algorithm of the FCA Financial Lives survey. It accurately assesses a client’s characteristics of vulnerability evaluating a client for ‘low’, ‘moderate’ or ‘high vulnerability’ in four areas: health, life events, resilience and capability.

Chris Jones, Chief Product Officer at Dynamic Planner said: “Consumer Duty brought sweeping change across the advice industry and over the past 12 months firms have been working hard to deliver on the guidance set out. We understand that any change or innovation takes time and we are determined to support our clients throughout to meet their objectives and help them to avoid harm.

“As with all new regulation, Consumer Duty has presented challenges and obstacles but the industry has and is overcoming them, with technology central to this success. Our analysis of how advice firms use Dynamic Planner to meet the new regulatory demands they face is a reassuring testimony to our ease of use and the quality of our users. They can rest assured that we will continue to innovate and align with the prevailing regulatory principles and changing requirements faced by the industry such as the Retirement Income Review, in both theirs and their clients’ best interests.”

Dynamic Planner, the UK’s leading risk based financial planning system, is now risk rating L&G’s Future World Global Opportunities Fund.

Managed by Colin Reedie, the award-winning L&G Future World Global Opportunities Fund is ranked No1 in its sector – IA Mixed Investment 20-60% Shares for its five-year performance. The fund follows a robust risk budgeting approach in portfolio construction and adopts an inherent conservative risk management culture. The fund invests in a wide range of assets, including equites and bonds, which meet Legal & General Investment Management long term sustainable investment criteria, based on environmental, social and governance factors.

On the independent and propriety 19 year Dynamic Planner Asset Risk Model the L&G Future World Global Opportunities Fund is a Risk Profile 5.

Yasmina Siadatan, Chief Revenue Officer, Dynamic Planner said: “L&G Future World Opportunities Fund is award-winning, with an interesting investment remit which incorporates L&G’s Climate Impact Pledge. Currently topping its sector for five year performance, we are pleased to be working closely with L&G to help match the fund to suitable investors through Dynamic Planner.

“There are now over 40 L&G solutions risk profiled with Dynamic Planner, meaning we take data direct from L&G to accurately risk assess the underlying holdings, institutional level research which is then available within the software to all our clients and their end investors through reports. We are delighted to welcome another L&G fund and further broaden out the choice of investment solutions and funds for our clients.”

Colin Reedie, Fund Manager and Head of Active Strategies, Legal & General Investment Management said: “We are living through remarkable times, both geopolitically and in financial markets. This creates prime investment opportunities that we have designed the L&G Global Ops fund to target. Our success is born out of a distinctive structure and process, underpinned by shrewd individual contributions to the team effort.”

Read to find more information about the fund on: https://fundcentres.lgim.com/en/uk/private-investors/fund-centre/Unit-Trust/Future-World-Sustainable-Opportunities-Fund/

Dynamic Planner, the UK’s leading risk based financial planning system, has made the first of several new key hires into its Customer Success and Marketing teams to continue to accelerate its growth and scale further.

Three new team members have joined: Will Dunwell, as Marketing Director to lead the Marketing team with more than 20 years of experience in scaling SaaS businesses to draw on; James O’Gara as Customer Success Director, with an extensive background in delivering positive outcomes for customers, joins having spent the past five years at Morningstar; and Neil Andrews, who joins as Customer Success Manager following eight years at Intelliflo, has spent 25 years in financial services and financial services technology.

The Customer Success Team will ensure a customer centric approach and build on trusted partnerships to ensure clients and their customers are achieving their goals – a critical driver of the success of Dynamic Planner. The Marketing Team will focus on executing growth campaigns, brand awareness and driving digital transformation.

Yasmina Siadatan, Chief Revenue Officer, Dynamic Planner said: “Dynamic Planner is now used by 40% of UK advice professionals and has risk profiled more than 2 million investors. We are proud to have built a market leading award-winning product which our clients tell us has been integral to meeting the demands of Consumer Duty.

“Our ambition is to continue to drive innovation in the UK financial planning market, and these new appointments will give us the firepower to make it happen. It’s an incredibly exciting time at Dynamic Planner and we are delighted to have James, Will and Neil on board. With their background and experience they will be a formidable addition to the team, ensuring that we have a strong customer-centric approach to our growth, that we fully understand our clients’ goals and that we communicate and listen in a meaningful way.”

Dynamic Planner, the UK’s leading risk based financial planning system, has added Omba’s Managed Portfolio Service (MPS) to its growing range of over 900 model portfolio solutions.

Omba MPS is aimed at advisers and designed to provide transparent, cost-effective and tax-efficient access to global and multi-asset managed portfolios. It consists of three ranges of investment options: Core, ESG and UK, with a total of eight portfolios all now risk profiled on Dynamic Planner.

The Omba MPS portfolios added to Dynamic Planner are:

• MPS Core Range: Omba Core Global Income; Omba Core Global Conservative; Omba Core Global Balanced; Omba Core Global Growth; Core Global Equity; Core Global Thematic Equity
• MPS ESG Range: Omba ESG Global Equity
• MPS UK Range: Omba UK & Global Equity

Yasmina Siadatan, Chief Revenue Officer, Dynamic Planner said: “Model portfolios have seen significant growth in recent times driven by technology adoption and the increasing regulatory burden on advisers, whether MiFID2 or Consumer Duty.

“As a result we are working with an ever increasing number of MPS providers to ensure we deliver the full choice to our clients and theirs, with MPS solutions risk profiled on Dynamic Planner now totalling over 900. We welcome Omba’s Managed Portfolio Service in bringing advice firms even more choice when it comes to risk profiled MPS on Dynamic Planner.”

Co-Founder Mark Perchtold, Omba said: “We are excited to announce Dynamic Planner has risk profiled our Managed Portfolio Service (MPS). Since our inception in 2017, we have specialised in ETFs and our independence is what sets us apart.

“We believe having our MPS risk profiled on Dynamic Planner will provide enhanced choice to the UK adviser market as they strive to meet the dynamic and evolving needs of their client base.”

To find out more about Omba’s Model Portfolio Services, visit their website here

By BNY Investment Management

The BNY Mellon Multi-Asset Income Fund is moving from risk bucket 6 to 5. In this blog we consider the rationale for this re-classification.

As of 17 May 2024, the BNY Mellon Multi-Asset Income Fund (MAIF) has been reclassified as Dynamic Planner Risk Rating 5. This reflects the fund’s robust risk management framework, at the forefront of which is the multi-asset team, who actively manage risk and return on a daily basis and who participate in the processes of idea generation, sharing, evaluation and implementation in portfolios.

As a reminder, MAIF has been a Dynamic Planner Premium Rated Fund¹ for several years² and will carry this across to the new risk bucket.

Launching in February 2015, the Fund aims to achieve income together with the potential for capital growth over the long-term (5 years or more). The Fund invests in a diversified range of assets, from equities and bonds to alternative assets.

Income is targeted at portfolio level, allowing the manager to determine where best to achieve income and where to seek capital growth. Globally focused, proprietary research that incorporates environmental, social and governance (ESG)³ considerations is a hallmark of Newton’s investment process.

If you would like more information, please visit the fund centre here or email BNY Mellon Investment Management at salessupport@bnymellon.com.

1. Dynamic Planner Risk Ratings should not be used for making an investment decision and it does not constitute a recommendation or advice in the selection of a specific investment or class of investments
2. As at September 2023.
3. Investment decisions are not solely based on environmental, social and governance (ESG) factors and other attributes of an investment may outweigh ESG considerations when making decisions. The way that material ESG factors are assessed may vary depending on the asset class and strategy involved and ESG factors may not be considered for all investments.

Performance track record

Source for all performance: Lipper as at 30 April 2024. Fund Performance for the Institutional Shares W (Accumulation) calculated as total return, including reinvested income net of UK tax and charges, based on net asset value. All figures are in GBP terms. The impact of an initial charge (currently not applied) can be material on the performance of your investment. Further information is available upon request.

Benchmark: The Fund will measure its performance against a composite index, comprising 60% MSCI AC World NR Index and 40% ICE Bank of America Global Broad Market GBP Hedged TR Index, as a comparator benchmark (the “Benchmark”). The Fund will use the Benchmark as an appropriate comparator because the Investment Manager utilises this index when measuring the Fund’s income yield.

The Fund is actively managed, which means the Investment Manager has absolute discretion to invest outside the Benchmark subject to the investment objective and policies disclosed in the Prospectus. While the Fund’s holdings may include constituents of the Benchmark, the selection of investments and their weightings in the portfolio are not influenced by the Benchmark. The investment strategy does not restrict the extent to which the Investment Manager may deviate from the Benchmark.

The fund can invest more than 35% of net assets in different Transferable Securities and Money Market Instruments issued or guaranteed by any EEA State, its local authorities, a third country or public international bodies of which one or more EEA States are members.

Past performance is not a guide to future performance.

The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.

Important information

For Professional Clients only. This is a financial promotion.

For a full list of risks applicable to this fund, please refer to the Prospectus or other offering documents.

Please refer to the prospectus and the KIID before making any investment decisions. Go to www.bnymellon.com
Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
For further information visit the BNY Mellon Investment Management website: http://www.bnymellonim.com. Doc ID: 1916807. EXP: 16 September 2024.

Dynamic Planner, the UK’s leading risk based financial planning system, has added a new level of granularity to researching and reviewing the performance of DFM model portfolios.

As part of Dynamic Planner’s continued expansion of its in Research capability, past performance for over 900 DFM MPS solutions currently risk profiled has been added and Dynamic Planner’s DFM MPS Report Service has launched. This in-depth reporting will be specifically focused on ensuring advice firms are fully equipped to deliver good outcomes for clients under Consumer Duty requirements, demonstrating the value received for the risks being taken when using model portfolios.

The DFM MPS Report Service will provide an extensive level of insight powered by Dynamic Planner’s 72-asset class risk model and the collection of full underlying funds holdings with performance data sourced directly from the portfolio manager. Calculations are referenced against a set of fully regulated multi-asset benchmarks, provided by MSCI, alongside the appropriate risk-adjusted peer group comparators in Dynamic Planner.

Chris Jones, Chief Proposition Officer, Dynamic Planner said: “Having launched our Single Strategy Mapped service earlier this year, we continue to evolve our research capabilities so that advisers have everything they need in one end to end journey. Adding past performance for DFM MPS and our new reporting service is the latest phase of this and will equip advice firms with deeper dive research, aiding target market selection and enabling them to really get under the bonnet of these solutions for client suitability. Any questions regarding structure, fees and other characteristics will be easily answered, and all within Dynamic Planner.

“Our asset risk model, and relationship with MSCI put us in a unique position to provide advice firms with the granular level of data needed to ensure they are fully equipped to deliver good outcomes for their clients, clearly demonstrating the value received for the risks being taken using model portfolios.”

The in-depth research considers key risk/reward characteristics, calibrated on both a forward and historic basis, alongside trend analysis of key ESG metrics of underlying fund holdings from over 67,000 mutual funds and ETFs via an API service. Traditional performance calculations are also complemented with more detailed financial ratios and rolling risk/reward metrics, based on a relative risk-adjusted peer basis for added target market relevance. All key facts on the underlying MPS fund charges, management fees, re-balancing frequency, investment objectives and approach are included, directly sourced from the portfolio managers.

Dynamic Planner also uniquely provides historical trend analysis of ESG risks for MPS solutions rather than just considering the latest snapshot of data. These reports are updated quarterly and downloadable from Dynamic Planner’s Research Hub.

by Dr Louis Williams, Head of Psychology and Behavioural Science

How do your clients interpret past performance? Is the information you provide valuable, or could it be leading them to make poor decisions?

Under the consumer understanding outcome of Consumer Duty, the FCA wants firms to support customers to make informed decisions by giving them the information they need, at the right time, in a way they can understand it. To support alignment with this outcome, we at Dynamic Planner wanted to find out how clients interpret the performance charts they are shown by their advisers.

Despite the requirement to include disclaimers to the contrary, research shows that past performance data is often relied on as a useful source of information for decision making¹. This can lead to poor choices due to behavioural biases such as availability bias, where clients use information that comes to mind quickly, and recency bias, where clients assume that future events and trends will resemble recent experiences².

Benchmarks are used in past performance charts to provide clients with a point of comparison, but little research has explored how these are used in making decisions, and whether they are or are not beneficial.

In collaboration with Mark Pittaccio (Quilter), Dr Eugene McSorley and Dr Rachel McCloy ( University of Reading), we conducted a research project to explore eye movements and decisions of experts and non-experts when interacting with past performance charts. A total of 60 participants took part in the study, and were categorised into three groups – students, clients, and experts – based on their background and experience.

Eye tracking technology monitors eye movements during decision-making processes, providing insight into how we process complex information before making a choice. Such techniques have been used across disciplines including sports, art, medicine and decision theory.

We used the technology to monitor the eye movements of participants while they viewed a range of charts depicting one year of hypothetical performance. Participants were fitted with an EyeLink II tracker headset, and answered questions for each graph about what they would do in the situation – would they stay invested? – and how they felt. They were also asked to estimate the maximum return and the return at the start of month nine to gauge their level of understanding.

We found that clients spent more time and made more fixations and visits to the last two months and the y-axis of performance charts than both experts and students – that is, they relied significantly more on recent performance to help with decisions.

They made even more visits to the last two months when they were provided with a benchmark, whether returns were positive or negative. The availability of a benchmark appears to be very important for clients, providing useful information on whether to remain invested and affecting their views on the future of their investments. However, paying too much attention to the benchmark and to recent performance can distort decisions.

A benchmark was helpful in reducing concerns when participants had achieved negative returns. However, if they had experienced positive returns, the inclusion of a benchmark reduced their propensity to remain invested. The presence of a benchmark also increased the complexity of the charts for non-experts, with both students and clients requiring more time to make a decision when a benchmark was shown.

Benchmarks and portfolio values are factual representations of what has actually happened, but they tend to be presented without context of the client’s own financial objectives or whether or not their financial plan is on track. This lack of context could lead to poor assumptions being made based on very recent performance.

The adviser’s skill is important to help make the information relevant to the client’s individual circumstances and help them resist the temptation to act on detrimental behavioural biases.

A personalised benchmark that demonstrates whether the client is ‘on track’ to achieve their objectives may be more appropriate than generic benchmarks. Further research can help us understand this and the effects of visual framing on clients’ interactions with past performance data.

Download the full report

Sources:

1. N. Capon, G. J. Fitzsimons, & R. Alan Prince (1996). An individual level analysis of the mutual fund investment decision. Journal of financial services research, 10(1), 59-82.
2. S. Diacon & J. Hasseldine (2007). Framing effects and risk perception: The effect of prior performance presentation format on investment fund choice. Journal of Economic Psychology, 28(1), 31-52; W. Bailey, A. Kumar & D. Ng (2011). Behavioural biases of mutual fund investors. Journal of financial economics, 102(1), 1-27.

By Andrzej Pioch, Lead Fund Manager, L&G Multi-Index Funds

A typical broad global equity benchmark has around two-thirds of its stocks domiciled in the US¹. Perhaps unsurprisingly, global equity indices therefore share the majority of their top 10 constituents with US equity indices, and the typical overall portfolio overlap between the two is currently over 60%².

Comparing the S&P 500 index’s top five holdings in 2009 versus today, they share only one name – Microsoft – and the concentration in top holdings has also increased from 10% to over 26% as at 25 January 2024. This has resulted in recent positive US equity index performance being driven by a relatively small number of stocks, namely the ‘Magnificent 7’ of Apple*, Amazon*, Alphabet*, Meta*, Microsoft*, Nvidia* and Tesla*. We believe this poses concentration risk not only for investors who hold US index exposure, but also for multi-asset strategies that hold global equity indices with common underlying exposure.

What can we do about it?

Some multi-asset strategies that align their equity exposure with global equity indices may increasingly look like a material bet on mega-cap tech companies becoming even larger. So, what can investors do to manage that risk?

They could always move back to active management for their equity exposure, where the manager might lower exposure to the ‘Magnificent 7’ and offer exposure to other themes that they believe could provide more attractive risk-adjusted return potential. However, this may introduce other types of stock-specific risk given the active nature of the approach and may potentially increase costs.

If they would like to preserve the simplicity and transparency of the index approach, they essentially have three options:

1. Use regional equity indices to build a more geographically-balanced equity portfolio. This preserves the transparency of the market-cap weighted index approach within individual regions, but lowers reliance on US stocks and in particular US mega-cap tech within the overall portfolio.
2. Complement their global market-cap exposure with a single- or multi-factor equity index exposure, which will tilt their exposure towards equity factors that have been shown to reward investors with long-term premia such as value, low volatility, quality, size or momentum.
3. Complement their market-cap exposure with equal-weighted investments leveraging emerging areas shaping our future. When identified and designed carefully, thematic portfolios can potentially act as a diversifier, while providing access to important areas such as clean energy, access to clean water and cyber defence.

In our L&G Multi-Index range, we seek the cost-effectiveness, diversification and transparency an index approach can deliver to individual asset classes, and then we combine this with dynamic asset allocation.

With a wide range of L&G index funds at our fingertips, we don’t need to accept global benchmarks’ implicit biases or concentration risks. That’s why we seek to spread our equity risk across a number of regional equity indices and gain exposure to long-term thematics via well-diversified L&G ETFs.

For example, while we are positive on artificial intelligence (AI), we don’t believe the ‘magnificent seven’ are the only companies set to benefit from this theme. We have spread our allocation equally over approximately 60 companies with distinct portions of their businesses and revenues derived from AI, that have the potential to grow in this space.

While certain index benchmarks have become increasingly concentrated, when introducing new risks to index investors we need to be careful not to throw the index baby out with the bathwater.

We think the innovation and ingenuity we have seen in this space makes index investing an exciting area to explore, not just for growth investors but also those looking for potential higher income, or who want to go further when it comes to ESG investing. That’s why they are a core foundation of our entire Multi-Index fund range.

Sources:

¹ The MSCI World, for instance, has a 69.7% allocation to US stocks. Source: https://www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb
² Nine of the top 10 portfolio holdings are the same in the S&P 500 and the MSCI World, and the overall portfolio overlap is around 66%. Source: Bloomberg data using ETFs as a proxy of index compositions, as of 02 October 2023

Key risk warnings

The value of investments and the income from them can go down as well as up and you may not get back the amount invested.

Past performance is not a guide to future performance. *The details contained here are for information purposes only and do not constitute investment advice or a recommendation or offer to buy or sell any security. The information above is provided on a general basis and does not take into account any individual investor’s circumstances. Any views expressed are those of LGIM as at the date of publication. Not for distribution to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation. Please refer to the fund offering documents which can be found at https://fundcentres.lgim.com/

This financial promotion is issued by Legal & General Investment Management Ltd. Registered in England and Wales No. 02091894. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Conduct Authority. Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No. 01009418. Registered Office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority, No. 119273

Fidelity Portfolio Manager Talib Sheikh discusses the current outlook across the income complex and why high-quality assets are prudent given the risks to growth.

What is your investment outlook for 2024 given the prevailing macro environment?

Risk appetite grew significantly towards the end of 2023. Strong economic data in the US and falling inflation gave many investors confidence that the current cycle could continue for even longer. However, we believe a little more caution is warranted. Our base case for a cyclical recession has not changed, although the ongoing strength of the US economy in the face of much higher interest rates means that the growth contraction is likely to come later in the year.

Although we expect developed market central bank rates to fall in 2024, we doubt the number of cuts currently priced in by the market will materialise. Nevertheless, interest rates are still high compared with recent history, and this will eventually create stress on corporate growth and earnings, weakening the medium-term fundamental outlook. At the same time, we recognise that this cycle could have further to run, hence, we are happy to be taking some risk selectively, such as European and Japanese banks, energy and UK large-caps.

Emerging markets, however, are at a different part of their monetary and inflation cycle. They have led developed markets in raising interest rates to combat inflation. Now, with inflation falling, they are beginning to reverse their monetary policy.

What do you think could surprise markets in 2024?

While markets remained broadly resilient in 2023 and have embraced a ‘soft-landing’ narrative, we believe the fundamentals are weakening and risks are not adequately priced in. Data that contradicts a soft landing will likely cause volatility. We therefore remain overall cautious on risk assets but also remain flexible in our approach to capture market opportunities as and when they arise.

What worked well in your portfolios over 2023?

While 2023 was a challenging year for total returns, we used the strategy’s flexibility to capture market opportunities and hedge unwanted risks. Equities were a strong contributor to returns, especially our relative value bets in energy and financials. We still like these sectors for their attractive yields. Global and Japanese equities also contributed to performance, as did emerging market local currency debt. We retain exposure in specific countries, such as Brazil and South Africa, and are looking to add to our broader emerging market debt local currency exposure as the backdrop is becoming more positive Hybrids, an area of strong conviction, have helped performance.

As inflation decelerates and interest rates remain high, bonds appear to be an appealing investment option. We are looking to deploy nominal and inflation-linked government bonds to capture high yields and inflation protection.

Where are the key areas of opportunity in 2024?

We anticipate that growth will slow and then contract towards the end of the year and hence believe an overall cautious stance is warranted. We prefer high quality dividend style equities and are taking risk selectively. We also have a bias towards high quality duration assets which stand to do well as growth deteriorates.

We remain cautious on higher risk credit, especially developed market high yield bonds, as we expect defaults to rise due to central bank policy and deteriorating growth. We also like emerging markets, where real yields are attractive in countries such as Brazil and South Africa, while opportunities also exist in equity markets that are trading at attractive valuations.

Important information

This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Fidelity’s Multi Asset Income funds can use financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Changes in currency exchange rates may affect the value of investments in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

As inflationary fears ease, multi-asset investors should ignore wider market distractions and stay focused on investing in the right asset classes, at the right time for the current stage of the financial cycle, says Newton head of mixed assets investment, Paul Flood.

Key points:

• Both threats and opportunities abound in current markets with inflation high but falling
• Bond markets are showing signs of real recovery after a challenging period
• Geopolitical factors could yet spook investors and spark renewed market volatility

Is inflation finally coming under control? After months of interest rate rises and concerted efforts by central banks such as the US Federal Reserve to ease inflationary fears, the measures appear to be working. November 2023 saw US inflation levels cool to 3.1% from a high of 9.1% in June 2022 with the UK market also showing a modest fall.

Yet while Newton’s Flood acknowledges the UK has seen its biggest drop in inflation in the UK since the early 1990s, he believes the economic outlook remains uncertain, with recession a strong possibility in 2024.

“Inflation is still quite high so we are not out of the woods yet,” he says. “A lot will depend on energy prices. As we go through the next 12 months we may find that the US economy remains resilient and we need to see wage inflation come back down to see what the US Fed does next.”

In this current uncertain backdrop, Flood believes it important investors keep a tight focus on the key assets most likely to generate strong returns.

“Investors need to avoid the short-term noise and focus on the bigger picture while trying to ensure they are investing in the right asset classes at the right time at the right stage of the financial cycle,” he says.

Bond boost

From an asset standpoint, the key question is: which way should investors turn next? According to Flood, both threats and opportunities abound in current markets, albeit with investors facing considerable risk and volatility. While he describes 2023 as a “less than stellar year” for alternative investments such as renewable energy, Flood still believes they remain broadly attractive.

Across more mainstream asset classes, Flood says bond markets in particular are showing signs of real recovery after a “horrible” 2022.

“Bond yields are looking increasingly attractive both here and in the US from the long end, in our view. After over a decade of mediocre relative real yields investors are now getting some true inflation protection from fixed income,” he adds.

While Flood also sees strong pockets of opportunity in equity markets, he points out that much of their success in 2023 was driven by large US technology companies, particularly the so-called ‘magnificent seven’, with a more mixed performance elsewhere.

“While equity markets have performed quite well in recent months, the success of the magnificent seven has tended to overshadow weakness among some other companies and sectors. For many equity investors it has actually been quite a challenging year, though price/earnings ratios do look to be improving and the equity market picture remains balanced as fiscal spending has remained supportive,” he adds.

For Professional Clients only. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.

For further information visit the BNY Mellon Investment Management website: http://www.bnymellonim.com.

ID: 1695190 Expires: 14 June 2024