Outlook 2024: Oliver Blackbourn (Janus Henderson Investors)

January 3, 2024

By Oliver Blackbourn, Multi-Asset Team at Janus Henderson Investors

Which asset classes are most attractive?

‘It is difficult to identify many areas of markets that look outright attractive while inflation is still above central bank targets and recession risks look elevated. As a result, we are seeking to maintain higher levels of diversification in portfolios. For US investors, higher interest rates and lower inflation make it easier to find assets that offer better initial entry points. However, the starting base is harder for euro-based investors where interest rates are only just surpassing inflation. With yield curves inverted, higher-quality fixed income assets are still often struggling to deliver yields above the current rate of inflation. At the same time, global equities are far from cheap, and earnings expectations remain close to peak levels. This leaves equity markets at risk of further falls, if economic growth slows meaningfully.

That said, some assets offer the prospect of better returns across a range of scenarios. Cash and short-term government debt now offer better absolute returns than over the last decade, particularly with inflation likely to continue to slow. European investment grade bonds offer potentially attractive returns over the medium term, having priced a greater probability of recession than other areas of credit. The lower duration and higher credit spreads on offer, compared to the US market, leads to greater likelihood of positive returns in the medium term. Similarly, euro high yield markets offer good yields, but investors may want to consider active managers as default rates are rising.’

Euro high yield markets offer good yields.