Wealth Outlook 2024 - Slow then grow

35 Wealth Outlook 2024 | Portfolio views Core portfolios could be ready to shine Considerations: • As prospective returns have risen, so has the cost of sitting on excess cash. • That makes this a good time to consider building a new or adding to an existing core portfolio. • It’s also a good time to revisit the basic principles of a core portfolio construction. That includes taking a professional approach, restoring bonds to their traditional role as anchor and diversifying within and across asset classes. In our opinion, this is a good time to build new core portfolios or to add to existing ones. The two pillars of investment returns – income and growth – appear reinvigorated. For the first time in many years, prospective returns across all major asset classes look promising. Our 10-year Strategic Return Estimates (SRE) for the elements of global portfolios have increased from two years ago. Of course, such forecasts are just that: forecasts fluctuate with changing conditions over time. A shock that drives inflation higher (or more quickly lower, for that matter) is just one of the unexpected developments that could alter the patterns we foresee. But based on where the data stands now, bond yields look attractive to us. Fixed income should be able to anchor portfolio returns while providing diversification and resilience going forward. Yields have risen toward two-decade highs. As inflation abates, today’s “real” after-inflation yields of 2.5% could be hard to come by. US equity valuations are more attractive now. Global equity valuations have improved, too. Many sectors trade at moderate valuations. Accordingly, we have already increased our exposure to global equities for core portfolios and are likely to continue to add more over the months to come. The setup for alternative assets is also promising, adding to our positivity about the opportunity set as we enter 2024. After euphoric returns in 2020 and 2021, markets suffered in 2022 and hadmixed results through 2023. This set-up suggests that a return to normal is ahead of us. As the economy slows, then grows, we expect markets will begin to anticipate the positive news we see ahead. (See Slow then grow on page 10 ) Wise investors have a strong core Core portfolios are a bedrock for wealth management. Maintaining exposure to growth and income through a balanced allocation to traditional and (for certain investors) nontraditional asset classes allows a portfolio to benefit from economic development, help minimize losses and potentially beat inflation. These are key to accumulating and sustaining wealth over time. Typically, the returns for the two largest parts of the core – stocks and bonds – tend to offset one another, with stocks doing better in years that bonds struggle