The first half of the month saw global equity indices and high yield bonds experience sharp declines and then rally into the year end, finishing the month marginally lower. The pattern of regional equity performance reflected what had been seen for much of the year, with US equities pushing onto new highs, whilst other markets lagged. Core sovereign bond yields moved lower as tumbling oil prices increased deflationary pressures, whilst the US dollar gained strength against most major currencies.
Our long-term view is largely unchanged, and we continue to believe our more cautious outlook remains rational.
The excess liquidity that has driven investor behaviour further along the risk spectrum is dwindling
If the US recovery remains sustainable, we expect the US dollar to continue to strengthen over the next few years
We have made a slight reduction in our allocation to equities. Within equities, we have reduced our exposure to Asia Pacific and emerging markets, and partially re-allocated this into Japanese equities.
We have increased our exposure to fixed income, particularly sovereign debt, and to a lesser extent investment grade corporate credit.
Finally, we have zero-weighted our allocation to commodities.