“We do not regard any of these cautionary or risk factors as likely to tip markets into a sustained and substantial drop, but each runs the possibility of triggering meaningful setbacks,” the report said.

“Taken together with the sharp run-up in markets ahead of year-end they call for some caution in portfolio construction in the shorter term.”

Inflation

Momentum calls core inflation ‘uncomfortably high’ across the US, Eurozone, and UK, where rates sit at 4%, 3.6%, and 5.1% respectively. While it said a recession has become less likely in the US, there could be periods of stagnation for the UK and EU.

“The resilience of these economies, especially the US, and the continuing tightness of labour markets, with wages now rising at above-inflation rates, are likely to mean policy will have to stay tight enough to trigger a sharp slowdown in economies,” the report said.

“Keeping rates close to current levels as inflation falls means higher real rates and tighter financial conditions, while the long lags and cumulative effects of monetary policy will be a headwind through much of 2024.”

See also: Should we still be worried about inflation?

Consumer resilience

While consumer resilience prevailed in 2023, Momentum believes this could take a downturn in 2024 as unemployment seems likely to rise and money saved during COVID-19 diminishes from personal funds, causing pockets to tighten.

“The extended period of higher interest rates will push interest payments on consumer debt to a higher proportion of disposable income and will likely result in rising delinquencies on debt repayments, including mortgages, auto-loans, and credit cards,” the report said.

China

China struggled to bounce back post-Covid and has faced fiscal troubles including regulatory clampdown, US trade sanctions, and over-leverage within the property development industry.

The report added: “China is again imparting a deflationary impulse to the global economy, and although it has gradually eased policy, its high debt levels provide limited room for stimulus.”

See also: Big trouble in China

Public debt levels

Following the Inflation Reduction Act in the US, federal deficits are expected to stay near 6% of GDP until 2030. Momentum said this stretched debt creates little fiscal flexibility and in the face of an election year, has a ‘near-zero prospect’ of being reined in.

“With the dysfunctional Congress facing a debt ceiling limit resolution in January, this is a problem that is likely to stalk markets and potentially damage confidence at times during 2024,” the report said.

Geopolitics

Momentum states Russia’s ongoing war with Ukraine presents unclear consequences for Ukraine and other former Soviet areas over time, while the Israel-Hamas war is moving closer to a proxy war with Iran and bringing in additional allies.

Momentum said: “Perhaps most important of all, the great power rivalry between the US and China has the potential to be the defining issue of our age, with little prospect of a material thawing in the relationship in a US election year and in the face of President Xi’s tough line and domestic political dominance.”

Elections

At least 50 countries will hold elections in 2024, including seven of the 10 most populous countries. Momentum also noted Taiwan’s election, taking place during a tenuous period with China.

“The US Presidential election in November is by far the most important, and although we would not normally regard an election as a significant event for markets, in this case there could be more meaningful repercussions than usual given the choice which is likely to be presented to Americans, namely Biden v Trump,” the report added.

Tightening cycle

The tightening cycle is under watch especially given the mini-banking crisis in March 2023, however Momentum said households, companies, and banks come in with “generally strong balance sheets”.

“We do not envisage systemic risks, but some damage on a narrower basis in over-leveraged parts of the economy facing structural problems, such as commercial real estate, and idiosyncratic events such as the SVB collapse, cannot be ruled out,” Momentum said.

This article was written for our sister title Portfolio Adviser

At a time when markets have been buffeting due to inflation, triggering rising bond yields and an uptick in the risk-free rate, some investors have been turning to alternative asset classes including hedge funds, commercial property and infrastructure to provide them to smooth returns and reduce market sensitivity.

Some investors warn against alternative assets accounting for a majority of a portfolio, given their complexity and – often – higher costs. But should investors who have traditionally stuck with the 60/40 split embrace the diversification that alternatives can bring?

Andrew Hardy, head of investment management at Momentum Global Investment Management (MGIM), points out that if done correctly, portfolio diversification can give investors with the ‘free lunch’ of steady and competitive returns, with a lower risk profile than the broader market.

“It rarely pays over the very long term to put all your eggs in one basket when investing,” he tells International Adviser. “That is truer than ever today, particularly after parts of the equity market have really dominated. The US market and the global equity indices are very concentrated and a handful of stocks represent the past winners, when actually the best returns might come from elsewhere.”

When discussing the traditional 60/40 portfolio, Hardy highlights two key problems – the first being a lack of diversification.

He says: “Our strategic asset allocation in portfolios would include credit, inflation-linked bonds, alternatives, precious metals, and most significantly, real assets as well.

“Property and infrastructure in particular have been very valuable over the course of the last couple of years during a period of higher inflation because they have better pricing power, and they can provide better protection in a higher inflation environment.”

The second problem with the 60/40 portfolio, according to Hardy, it their “static nature”, suggesting that even if investors only wanted equities and bonds in their portfolios, there will be times when they want more or less of one or the other.

“This is a period where if we [Momentum] had an equity/bond portfolio we would have been very underweight fixed income for a long time but now we’re moving much more towards neutral to slightly overweight overall.”

Hardy points outs that, although multi-asset portfolios have disappointed over the last couple of years as equities and bonds have lost money, that doesn’t necessarily mean that the idea of combining asset classes should be thrown out with the bath water following a difficult few years. In fact, he says that the argument for having a multi-asset diversified portfolio is stronger than ever in today’s environment.

“We are now in this more ‘normal’ environment and we are in a later cycle environment, where the risks of recession are quite elevated. You are being very well paid within fixed income to take on a bit of diversification and protection within that.”

Choosing alternatives

Alternatives tend to be less correlated with other asset classes, says Hardy, with the least correlated investments across Momentum’s portfolios including hedge funds and market neutral-type strategies.

He says: “The strategy we [Momentum] allocate to there did really well last year, that was up 8% when pretty much everything had fallen significantly. This highlights the benefits that come from that area.”

While real assets do tend to be more sensitive to market sentiment, the likes of infrastructure are often monopolistic and boast superior pricing power, meaning they can better protect against inflation.

Another key area for earning potential that investors can tap into, Hardy suggests, is private assets.

“Over the last 15 years or so more and more companies have chosen to stay private and deferred listing. Klarna, for example, would be one that we [Momentum] have exposure to, the so-called ‘unicorns’ that have multi-billion dollar valuations but no intention to list anytime soon,” says Hardy.

He suggests that investors who don’t have exposure to private assets are potentially missing out on growth opportunities and what he calls the ‘next wave of innovation’.

“Some of the most disruptive, highest growth businesses are staying private for longer so you need a way to access those,” adds Hardy.

Even though alternatives can contribute to the idea of diversification being a ‘free lunch’, Hardy warns they can be challenging due to their illiquid nature, and warns that investors need to be careful to avoid creating a liquidity mismatch in their portfolios.

“Our multi-asset portfolios are daily dealing so, to avoid a liquidity mismatch, we access these assets through listed vehicles, such as investment trusts – closed-ended funds that trade on the stock exchange,” explains Hardy.

UK-listed investment trusts are currently trading at significant discounts to the net asset value ,which Hardy suggests is a ‘really good opportunity’ for investors.

Looking beyond cash

Investors have increasingly been questioning why they should be investing in the likes of equities and bonds when they could be getting 5% on cash sitting in their bank. This means both asset classes have suffered net outflows.

Hardy suggests that the same applies to alternative income-producing asset classes: “In the last ten years or so a lot of money was going into investment trusts because they were able to offer high single-digit yields in many cases, whereas now suddenly there has been a lot of selling pressure in that area, leading to discounts. This has been bad for investors looking in the rearview mirror, as it can mean they haven’t really made that much money.”

Looking over the medium-to-long term, however, Hardy believes that the return potential is actually very good for those buying trusts at a discounted rate.

Stick with multi-asset

Overall, Hardy says that Momentum is telling its multi-asset clients to ‘stick with it’, despite challenging market conditions.

“Don’t be put off by performance over the last couple of years on whatever multi-asset strategy you are using, the benefits of diversification and a long-term approach are truer now than ever and the return potential from here is actually very attractive on a medium-term view from now,” he says.

Hardy adds that investors should not be put off by the risk of recession, as they can create ‘a cycle of creative destruction’ whereby the bad investments are weeded out, while the good investments become stronger.

“If you strip out the performance of the big so-called Magnificent Seven from the global equity market, performance has been very weak so a lot of risk has been priced in already. Therefore, even if you did have perfect foresight that a recession is coming, valuations might be discounting a lot of that anyway so there might not be too much downside,” Hardy points out.

He adds that he is “pretty confident” that inflation is on the cusp of falling and, historically, periods following a peak in inflation have been “incredibly lucrative” for investors.

“It stands to reason that, if inflation starts falling, interest rates can start to come down and historically this has meant very high returns – in many cases double-digit annualised returns – over five years.”

Ross Liston has been named as chief executive of M&G Wealth Advice.

He joins from Sesame Bankhall Group (SBG), where he was latterly interim chief executive.

Liston will be joined at M&G Wealth Advice by Campbell Stanners also from SBG, where he was advisory relationship director for its mortgage club, premier mortgage services and Bankhall.

Stanners will take on the role of business development director at M&G Wealth Advice.

Chartered Insurance Institute

The professional body has named Mathew Mallett as chief digital and information officer.

He joins from the UK Space Agency.

One Four Nine Group

The IFA group has made a triple hire.

Stuart Harding has joined as chief operating officer. He has experience in acquisitions and integrations for companies including Barclays, NatWest and most recently Attivo.

Barry Strathearn will lead the group risk and compliance function by becoming chief compliance officer. He joins from Lowes Financial Management, where he was director of compliance.

Lastly, Asif Huq has joined as M&A director. Huq was previously interim M&A director at Compass Group and IWP.

Standard Life

The Phoenix Group subsidiary has named appointed Dean Butler to the newly created role of managing director of retail direct.

Butler joins from M&G, where he was head of digital strategy and delivery in M&G Wealth.

Momentum Global Investment Management (MGIM)

The investment firm has appointed Alistair Yeoman and Jonathan Garner as business development consultants.

Yeoman has over five years industry experience, while Garner has over eight years experience.

Close Brothers Asset Management (CBAM)

David Wilson has joined the wealth firm as business development director for Scotland, Northern Ireland and north east England.

He joins from Triple Point Investment Management, where he was business development manager.

Maurice Turnor Gardner

Fiona Poole has been appointed as head of private wealth at the law firm.

She has been a partner at MTG since 2017, having been the firm’s first lateral hire in 2010 following its demerger from Allen & Overy in 2009.

Before joining MTG, Poole specialised in entrepreneurs and private client tax at PwC.

Fidelity International

The investment firm has appointed Sabrina Gan as head of southeast Asia and country head of Singapore, subject to regulatory approval.

Gan will continue to be based in Singapore.

She joined Fidelity in 2015 and has more than 20 years of experience in the asset management and financial services industry.

Gan previously held senior distribution roles at Schroders and BlackRock.

This follows requests from financial advisers and wealth managers who work with expats, to have strategies for their clients that balance commercial outcomes with societal and environmental concerns.

The HSG fund will be run by portfolio managers Andrew Hardy and Lorenzo La Posta, and is available to global investors except in the US.

It will offer global exposure to a diversified range of asset classes and return drivers, with allocation focused on capital growth via sustainable investment strategies.

Some of the key features of the fund are:

• Base currency is US dollar;
• Investment horizon over six years;
• Target return is 6-7%;
• Expected volatility is 9-12%; and
• Four share classes are currently available, across US dollar, Euro (hedged), Pound (hedged) and Australian dollar (hedged).

‘Clear objective’

Hardy, director of investment management at Momentum, said: “We are fully committed to our role as an active and responsible steward of our client’s capital.

“This solution meets a noticeably clear objective for expat advisers, which is to access global growth in a sustainable manner, with multi-asset diversification.

“We believe that the Sustainable Growth Fund will help our clients, wherever they are based in the world, achieve their financial goals, while contributing to a better world.”

HSG is a sub-fund of the Momentum Global Funds Sicav, which is domiciled in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier.

This follows feedback from financial advisers and planners who have witnessed the recent surge in investor demand for strategies that balance both commercial and societal or environmental concerns.

MGIM said that the Momentum sustainable portfolios “have been designed” with advisers’ needs in mind.

The offering consists of three actively managed multi-asset model portfolios that are intended to mirror the historical asset allocation of Momentum’s existing core MPS.

This includes a balance, moderate and a growth strategy. Each portfolio employs between 18-20 funds, using Momentum’s sustainable selection criteria, which is supported by Morningstar’s ‘Sustainalytics’ rating system.

The sustainable MPS carries a DFM charge of 0.25% and will initially be available on the Aviva, Quilter, and Standard Life platforms.

Cater clients

Alex Harvey, lead portfolio manager for MPS at Momentum, said: “Responsible investing has long been a key element of consideration within our investment decisions and manager selections.

“We have drawn on this extensive experience in the creation of these sustainable portfolios, as they specifically cater to clients who wish to invest with a greater emphasis on the social and environmental footprint of their investments, whilst not compromising on their financial returns.”

Steve Hunter, head of business development at Momentum, added: “I am delighted at our enhanced capability to meet a key investor demand for sustainable investing.

“Across our investment approach, we aim to deliver portfolios with a superior level of diversification and difference. In these model portfolios, we are proud to announce that we have done just that.”