Soaring valuations have left a lingering sense of complacency among investors, and with the risk of global growth slowing its important people “remain vigilant”, Architas has warned.
However, it accepted it remains difficult to guess exactly what could cause a shift in market sentiment.
In its outlook for the second half of the year, Architas said a recession looked unlikely and that interest rates would rise.
Corporate bonds looked expensive given the outlook, it added, and it is going to be harder to generate returns on bonds as yields rise.
Instead, strategic allocation and portfolio construction will be the main driver of returns.
Growth to slow
Adrian Lowcock, investment director at Architas, said: “The first half of 2017 ended with a benign macro backdrop. Growth and inflation, while not being strong, are showing increasing signs of improvement. Returns have been stronger than expected and volatility has remained low.
“Despite the lack of fiscal stimulus in the US and the gradual withdrawal of monetary stimulus by the US Fed, growth among the global economies has been sufficient to keep markets buoyant.
“Overall for the second half of 2017, ongoing synchronised global growth should prove supportive of markets. However, I do not expect growth to continue at the same pace made in the first half of the year.
“With valuations high it makes sense to be prepared for some increased level of volatility and believe it is wise to hold some defensive assets.”
