Four themes emerging in 2024 – and how to prepare your portfolio for them

Rob Burgeman, senior investment manager at wealth manager RBC Brewin Dolphin

The year may only be a month old, but some clear themes are already beginning to shape markets. There have already been some surprises – not least in the latest UK inflation data – and there will undoubtedly be more to come.

It is important to remember that markets go up and down, economies boom and bust and governments come and go, but it tends not to affect how much washing powder you put in your laundry. We firmly believe that the best defence against challenging markets is a focus on the quality of investments that we hold, coupled with a diversified portfolio of investments. A professional adviser will be able to guide you through how this would work for your circumstances.

Quality companies lie at the core of our investment portfolios and we are confident that they will deliver solid capital growth and income returns over the longer term. The fairly sudden change in interest rates created a challenging environment, but, as the tide turns, we look to the remainder of the year and beyond with some confidence; albeit, knowing there will inevitably be a few extra and unforeseen challenges along the way.

A big 2024 for UK politics

Politics will be at the forefront of many people’s minds this year, with a UK general election a certainty before January 2025. The indications are that there will be an election in the autumn, with the gamble that the economy will show signs of recovery and the incumbent government – which has trailed heavily in recent polls – may have an easier go.

Election years are inevitably busy for polling companies and YouGov is among the best-known names in the business. Despite having a market cap of more than £1 billion, the company is only covered by six analysts, all of which rate it a ‘buy’ with an average price target of 1314p – a potential 17% premium to its current share price.

Falling interest rates and possible Budget giveaways – already hinted at by the Chancellor – may give a much-needed boost to retailers after a tough festive period. Next sits in a prime position amongst what is left of the sector, combining its strong physical presence with an increasingly sophisticated and diversified online offering. 

A more settled political scene post-election – all things being equal – might make the UK look a more attractive proposition for international investors. On that basis, the Vanguard FTSE UK All Share Index– a tracker fund tracking the overall UK market – is a quick, efficient and cheap way to get exposure to the UK market. It offers a yield of 3.7% for a charge of 0.06%¹. Abrdn UK Mid Cap Equity, with its exposure to more domestically focused medium-sized companies, is also a good way of benefitting from any boost to the wider UK economy at a cost of 0.84%².

Don’t forget about the US

Set for November this year, voters in the USA will also go to the polls. The way things are shaping up is already interesting, with Donald Trump back in he headlines and Joe Biden struggling to reap the benefits of an economy that is doing OK, all things considered. Nevertheless, it would be dangerous to underestimate the continued strength of the US economy – it will continue to lead in key sectors, especially technology, which should drive the global economy.

Simple trackers, such as the SPDR S&P 500 ETF will provide broad exposure to the US market at a cost just 0.03%³. For those looking for a more technology tilt, the Invesco Nasdaq 100 Tracker replicates the Nasdaq index, albeit for a higher charge of around 0.3%⁴. A more active approach can be found with the likes of GQG Partners US Equity Fund, which is more momentum driven, switching between value and growth and between sectors as its management team deems appropriate.This is available for around 0.55%⁵.

Continuing challenges in Asia

The Chinese economy has failed to make any progress over the last year, with a collapse in the property market leading to a collapse in economic confidence. This has been accompanied by further interventions by the Chinese government affecting large companies, which has, in turn, led to sharp falls in share prices. Businesses that fall into this category require a very large risk premium, which is reflected in their current very low ratings and – on paper, at least – very cheap shares. 

Looking for a recovery in Asia more generally – an underperforming area over the last year – is a challenge. However, BNY Mellon Asian Income is notably underweight in its exposure to China and offers a gross yield of 3.88%. The cost is around 0.8% ⁶. A more traditional exposure can be achieved via the HSBC MSCI Pacific ex Japan ETF, which charges 0.15% and offers a gross yield of around 4.1%⁷.

Green is back

Green investment has not had a good couple of years, but this reflects how overblown the story behind some companies in this theme became – particularly during the pandemic. Yet, the uncomfortable truth is that the challenges many of these businesses remain very relevant and governments need to take action to, at the very least, slow the pace of change.

If spending on solving environmental issues starts to pick up, Pictet Global Environmental Opportunities may be well placed to benefit. The fund does what it says on the tin, investing in companies with an environmental theme – more than 50% of its exposure is to the USA, followed by a range of European countries and Japan, and it comes with an ongoing charge of 1.12%⁸. Alternatively, Schroder Global Energy Transition invests in companies related to the energy transition, ranging from renewable technology to electric vehicles and chemicals. It has a good geographical spread and comes with a charge of 0.95%⁹.

Disclaimers

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Investment values may increase or decrease as a result of currency fluctuations. Information is provided only as an example and is not a recommendation to pursue a particular strategy. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewin.co.uk. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Forecasts are not a reliable indicator of future performance. The criteria for a sustainable investment are still under development and can change. Please make sure you understand the objective and environmental, social and governance (“ESG”) characteristics of the product or service you invest in. Be aware a strategy, based on securities of companies which maintain strong ESG credentials, may result in a return that compares unfavourably to similar investments without such focus.

RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office: 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 690 8994 69.

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For further information, please contact:

Peter McFarlane peter.mcfarlane@framecreates.co.uk / 07412 739 093

Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343