Multi-Asset Funds: June 2024

18 July 2024

The US Federal Open Market Committee (FOMC) members opted to keep the federal funds target range unchanged at 5.25% to 5.5% with some noteworthy forecast revisions worth mentioning. An even shallower rate cutting cycle has been projected this year and next, while the longer run rate was lifted to 2.8% from 2.6% previously. These developments come on the back of upward revisions to headline and core personal consumption expenditure inflation forecasts. While this reaffirms the higher-for-longer mantra adopted by the FOMC, Federal Reserve (Fed) chairman Jerome Powell did maintain that the committee will be data dependent in their approach to prospective monetary policy actions. At this stage, labour market indicators remain relatively upbeat, and inflation has only recently surprised to the downside in the latest print, but still well above the 2% target. Elsewhere in the UK, however, inflation data returned to 2% year-on-year in the May print which registers as the lowest reading since July 2021.

China data was somewhat mixed over the month with better-than-expected retail sales data, but weaker-than-anticipated PMI and total social financing prints. On balance, monetary policy will likely remain accommodative in an attempt to drive better demand dynamics and lift inflation prospects going froward.   

Overall, global financial conditions remain relatively loose, yet some major global central banks have commenced easing policy rates. We remain of the belief that policymakers will need to strike a fine balance between the magnitude of interest rate cuts and potentially reigniting inflation, particularly in the Western World. This quandary will likely remain at the forefront of monetary policy decisions this year. 

Fund strategy

Given that global equity markets have endured another strong upturn this year, more research houses are lifting year-end price targets. While this is certainly welcomed, we remain positioned in selected opportunities within our internal equity building blocks consisting primarily of Ashburton’s Global Leaders and Global Equity Growth Funds. Themes such as the emergence of Artificial Intelligence (AI) and the recovery in China are on our radar.

China’s equity market performance has faltered recently. Nevertheless, we remain encouraged by accommodative monetary policy supportive measures. Overall, multiples remain low in the country and international investors are generally very underweight in the region. We remain acutely aware that both investor positioning and multiples historically change rapidly once confidence returns.

The implied federal funds rate path has moved meaningfully higher compared to the beginning of the year. While this has made fixed income yields somewhat more attractive, the labour market remains tight and is some distance from what would likely create a scenario of deep rate cuts in the coming months. Accordingly, we maintain some allocation to T-bills as they remain attractive with a yield north of 5% and remain cautious of the overall level of duration in the multi-asset funds for now. 

Fund performance

The USD Global Growth Fund climbed 1.7%[1] while the USD Global Balanced Fund increased 1.5% compared to its Morningstar peers which rose 1.5% and 1.2% respectively. The outperformance can likely be ascribed to the higher equity allocation relative to the peer group. Accordingly, we have delivered first and second quartile performance for each respective fund this year. While we have recently added some fixed income to the multi-asset funds, we still prefer to have alternative exposure through a market-neutral long/short fund as a diversifier, which has been a strong outperformer. At this stage, we remain underweight duration within our fixed-income allocation.