The asset manager sets out its multi-asset allocation views.

Schroders, the investment and wealth house in the process of being acquired by US-headquartered Nuveen, is upgrading exposure to commodities because it expects higher oil prices and firmer industrial metals prices.

In February, Schroders made the change to commodities, saying that the allocation position “should perform well in either a supply-driven shock scenario or in an overheating economy.”

“We remain long gold despite recent volatility, as we expect continued structural demand from emerging market central banks and see it as an important diversifier against fiscal and geopolitical risks,” Patrick Brenner, chief investment officer, multi-asset at the firm, said in a note.

Gold prices hit a record of $5,548 per ounce in late January, having fetched $2,044 as recently as late December 2023. Worries that President Donald Trump's administration wants to weaken the dollar (to boost exports), as well as concerns about geopolitical tensions and persistent inflation, encouraged a shift into the safe-haven metal. However, there were concerns that the influx was overdone, and relief that Trump’s nominee for next Federal Reserve chairman (Kevin Warsh) would not be an automatic monetary policy “dove,” seems to have taken some of the shine off gold. Yesterday afternoon in London, gold was quoted at $5,176 per ounce.

Inflation 
“At first glance, our baseline scenario has moved closer to a “Goldilocks” environment, characterised by resilient growth and moderating inflation. However, we continue to see risks tilted towards inflation,” Brenner said. “Labour market conditions remain solid, the economy is running above potential, and a dovish-leaning Federal Reserve (Fed) combined with sizeable fiscal stimulus points to a reflationary backdrop.”

Schroders is staying to a “constructive” stance on equities because recession risks are low, inflation contained – at least in the near term – and corporate earnings continue to drive returns.

The asset manager is changing the way it expresses its overweight position on US equities from mega-caps towards a wider array of firms, and to those more tied to shifts in the business cycle, such as industrials and financials.

“We also favour value outside the US, particularly in Europe and Japan, where valuations remain more compelling and earnings sensitivity to global reflation is attractive,” Brenner said. 

On the fixed income side, Brenner said Schroders is biased towards shorter maturity bonds, based on the view that economic growth will rise faster than the market consensus.

Warsh’s appointment to lead the US central bank may reduce the view that the Fed is losing its independence, which could reduce downward pressure on the dollar in the near term. In the medium term, a trend towards “de-dollarisation” continues, but Schroders has chosen to neutralise its long euro/dollar position because many of its existing exposures, such as to emerging market local debt, gold and commodities, are benefiting from dollar weakness.