2023-12-22 14:57:49
Every year has its own favorites. At the end of a calendar year, when the cards are on the table, quite a few investors are likely to think: “If only I had ‘known’ or at least suspected this beforehand and adjusted my portfolio accordingly.” Many investment professionals seem to be in favor of the year 2024, which is about to begin To be in agreement, one takes their official forecasts and outlooks as a benchmark. Bonds are largely at the top of the agenda here.
An often recurring assessment is that bonds are likely to perform best among the various asset classes. In the sense of the well-known contrarian opinion, it doesn’t have to happen that way at all – especially not if a particularly large number of investors have this view and are moving in the same direction. The dissidents, on the other hand, like to act against general market trends and invest countercyclically.
In any case, the 219 fund managers surveyed worldwide by Bank of America in December, who together manage $611 billion, are among the majority of bond fans. The average overweight of bonds in their portfolios is higher than it has been in 15 years. But the share of stocks will also be slightly higher again in the transition to the coming year than in November. However, respondents are more pessimistic about raw materials relative to bonds than they have been since 2009.
Professional investors are optimistic
Overall, more fund managers are currently drawing an optimistic “Goldilocks” scenario for 2024, an economic world in the perfect middle – with growth slightly above the long-term average and relatively low inflation. Therefore, with a portfolio share of 4.5 percent, compared to 4.7 percent, these professional investors hold less cash than they have in two years. Conversely, this means: you have already positioned yourself.
The signals from the major central banks differ, but in any case they do not point upwards. While the American Fed is already announcing its first interest rate cuts next year, the European Central Bank is more cautious. The economic situation opens up scope for interest rate cuts, says Felix Herrmann, chief economist at the asset manager Aramea Asset Management, but urges caution with regard to the development of inflation. He is fundamentally confident about the capital market year 2024. This is primarily due to the constructive expectations for the international bond markets. From the perspective of a euro investor, these should deliver a positive return of more than 5 percent and thus top 2023 in terms of performance.
The Fed and markets agree that rate cuts are coming, but not when exactly, said Seema Shah, chief investment strategist at Principal Asset Management. In their view, the US economy must first show clear signs of weakening before monetary authorities can be sure that inflation is on a sustained path to the desired target value in order to then start cutting interest rates.
Even if the markets’ current assessment of the start of monetary easing in March is probably too optimistic, the more important message remains clear: the path to interest rate cuts is emerging. Shah expects it will take longer for an economic slowdown to become clearer, possibly by mid-year. The uncertainty about the exact timing of interest rate cuts will lead to increased volatility. But it won’t change the trend.
Actually, 2023 should have been the year of bonds, according to JP Morgan Asset Management. After the challenging year of 2022, the bond markets got off to a good start in the first quarter – until the crisis in some regional banks caused a reversal. The signs have now improved for 2024; the positive environment for bonds has only shifted by one year. Not only government bonds are attractive, the returns on all bond segments are above the twenty-year average interest rates and offer attractive opportunities.
Christian Siedenbiedel Published/Updated: Recommendations: 12 Kerstin Papon Published/Updated: Recommendations: 7 Dennis Kremer Published/Updated: , Recommendations: 18
Asset manager Nuveen warns against underestimating the potential for disappointment for investors. The markets had already prematurely expected interest rate cuts at several points in this cycle. They could therefore be disappointed again with the number and pace of interest rate cuts that they have factored in for the coming year, says Saira Malik, chief investment strategist at Nuveen. In fact, interest rates would probably not be lowered until the delayed effects of the Fed’s actions materialize in the form of a mild recession. This is likely to be the case in the second half of 2024.
A portfolio should therefore be prepared for a recession with defensive, high-quality segments of stock and bond markets. Investors should consider overweighting bonds to benefit from current yields. And in a year everyone will be smarter again.
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