This video is designed to give you relatively current views of Portfolio Management Group in regards to markets. This is for information only and is not a financial promotion. Any comments and opinions included reflect the view of our fund managers. These should not be taken as a recommendation or advice regarding how markets are likely to perform. It is important to remember that past performance is not a reliable indicator of future performance. Comments made on possible future performance simply reflect the fund managers opinion on what may be achieved at this time.
Matthew Williams Videocast Transcript
So as we finish 2012 it has been quite an interesting year really, because the economic news that has been coming out has been kind of mixed. There has been some negativity, there has been some positive things that have come, but I think the thing that is important to remember is of course investment markets have done very well in that period and you look at the returns you have got from investment products and they have been pretty strong.
That said the challenge's that the economies face, that we were talking about a year ago and throughout the year are really still there in some forms so that's about the deleveraging of the banking sector the economic growth picture and the solution for the euro as well. And all those things are not yet resolved but progress has been made.
Central banks have been very strong, I think, and they have done good things throughout the course of the year, and politicians are sort of catching up to get the right balance between austerity and the need to stimulate growth and find that right balance.
So uncertainties persist and looking ahead there will still be some bumpy times -some good days and bad days in terms of the news flow, but what we are seeing is, I think, that uncertainty is gradually getting worked away. And where you are seeing economic growth is not particularly strong but it is stabilising and becoming more certain, if that is the right way of putting it.
When you think about investment markets the one feature is that what you might call risk assets, so that's things like equities and property, they are okay, the pricing there is sufficient to enable you to be reasonably comfortable that you should carry on holding those in the mix. Equities particularly despite the fact that equities performed very strongly towards the end of the year, we still think there is headroom there. The valuations are looking attractive still on equities and certainly within our portfolios we remain tilted to be overweight in equities because we think the increasing good news helps equities carry on the trend they have shown.
Property has shown to be a bit more of a mixed bag. In property it is a market that has good bit and bad bits, particularly in the UK, there are lots of headlines about prime property and things in central London. And then there are other properties that are doing less well, secondary properties in less fashionable areas. All in all in the mix it is something whilst we wouldn't be very excited about we are happy to hold on to it, we wouldn't want to add to it, and at the moment we wouldn't really reduce the weighting significantly but we are keeping an eye on it because the picture for property is, as I say, that it is quite mixed.
Bond markets are interesting, government bonds as we have said for a long time have very low levels of yield. Because of those low levels of yield in government bond markets we not inclined to hold them, we don't like those assets particularly. When you move into corporate bond markets that is where you get paid an additional yield in term of a credit spread. That additional yield is enough to make us happy to hold them, we think credit spread is attractively priced and we maintain that. And actually corporate bonds have been doing very well, particularly in the high yield area.
So high yield corporate bonds have done well. We don't think they will have another year like they have just had, because frankly the returns have been spectacular in 2012, but the pricing is there to make them a solid asset class. So, corporate bonds, credit risk, we are happy to hold them in a portfolio.
So, across a diversified mix we are liking those kind of riskier bits, the equities and the credit risk, and we are out the assets sometimes called secure of safe assets, government bonds because frankly you are just not getting paid enough to hold those assets.
So what all that means is when you look ahead the prospects for 2013, whilst we have had a good year in terms of the return in 2012, 2013 may not be exactly the same, you may not get returns as you have seen last year, but they should be solid and positive. So looking ahead the things that concern us are the potential for bad news, the economic situation where as I say there will be good days and bad days in terms of what is on the news at 10, if you like, but in terms of the investment markets they are attractively priced in the mix. If you have a spread across those markets and you diversify well and you keep and eye on what you are doing we think it should be a reasonably solid year ahead.
Sharing options will be available soon.
Access information on Prudential's fund ranges.
