Abrdn investment trust managers from around the world have published their outlook updates as they navigate an upcoming UK budget, shifting interest rates, geopolitical tensions, the American presidential election and China’s fresh stimulus measures.
The Edinburgh-based asset management group has assets under management and administration (AUMA) of £507 billion.
Martin Connaghan and Samantha Fitzpatrick, co-managers, Murray International Trust, a £1.6bn trust that looks to investing in a high conviction global portfolio built with the potential to grow capital and deliver a strong and rising income, said: “Macroeconomic conditions remain as unpredictable as ever.
“Although the Fed has finally acted on interest rates, there is still potential for disappointment in both the speed and scale of future cuts, especially with elevated geopolitical tensions that could sharply affect investor sentiment and impact the deflationary environment.
“Whilst a soft landing is the consensus base case, some market participants have raised the likelihood of a US recession following volatile labour reports over the past few months.
“Volatility is set to remain a feature of markets, given elevated geopolitical risk in the Middle East, combined with a tight US presidential race and data-dependent central banks – all of which provide opportunities for active investors.
“Our focus remains on individual stocks, ensuring the portfolio is well-diversified across regions and sectors, and resilient enough to preserve capital during periods of market weakness.”
Charles Luke, investment director, Murray Income Trust, a £1 billion investment trust aiming for high and growing income with capital growth, said: “We expect the sharp monetary policy tightening over the past 24 months to lead to a slowdown in global economic growth.
“The developed market easing cycle is now underway and as expected the US Federal Reserve began cutting interest rates in September, with the BoE and ECB both likely to deliver more rate cuts later in the year.
“The UK election result may help to reduce political uncertainty and boost investment. The UK’s fiscal space is very limited so Labour’s growth strategy depends on planning reform, industrial policy and close relations with the EU. Successful structural reform should help to boost the UK’s potential growth but there are significant execution risks.
“The portfolio is aligned to compelling long-term trends such as ageing populations, increasing wealth of middle classes, digital transformation and the energy transition. We invest in high quality companies capable of delivering appealing long-term earnings and dividend growth at a relatively modest aggregate valuation.
“These companies benefit from high returns on capital, pricing power, attractive margins and strong balance sheets. We also believe a focus on quality companies should provide earnings resilience and sustainability, and less volatility which are helpful in underpinning the portfolio’s income generation.”
Abby Glennie and Amanda Yeaman, investment managers of Abrdn UK Smaller Companies Growth Trust, a £420 million company that looks to achieve long term capital growth by investment in UK quoted smaller companies, said: “The last two months have been an unsettled period for global equities as investors have reacted to economic and political uncertainty – most notably the risk of slowing growth in the US and the forthcoming American presidential election.
“However, we continue to see a strong earnings growth outlook in the UK small- and mid-cap space, with healthy double-digit projections across the FTSE 250 far exceeding the forecasts for limited growth in the FTSE 100.
“Investor appetite for UK stocks remains healthy, though flows to the sector have eased after a small recovery from historic lows earlier in the year. We hope inflows will gather momentum as markets gain more confidence when macro events play out.
“Valuations remain attractive, especially in the face of the earnings growth forecast, and bid activity continues to play an important role in the UK market. Lastly, we reiterate our belief that the start of the rate-cutting cycle should be a further positive catalyst for smaller companies.”
Gabriel Sacks, portfolio manager, Abrdn Asia Focus, a £590 million company that holds a fundamental, high conviction portfolio of well-researched Asian small caps, said: “As we head into the final months of 2024, we have seen stocks across Asia rebound on the back of the Fed’s rate cut and China’s fresh stimulus.
“For now, China’s measures have largely been more supply side and monetary focused, and whether the sharp rally in mainland stocks is sustainable remains to be seen. The key will be whether the authorities follow through with fiscal measures aimed at boosting the demand side and reviving consumer sentiment and consumption.
“Other key areas of focus would include rising geopolitical risks in the Middle East, where Iran’s missile strike has increased the risk of a broader escalation, with direct conflict between Iran and Israel now more likely. Oil prices have spiked in response to the fragile and rapidly evolving situation, and we are monitoring developments closely.
“In the US, it remains a tight race between Donald Trump and Kamala Harris in the run-up to the November 5 presidential election, with the outcome bringing implications around trade, tariffs and foreign policy to Asia.
“Returning to Asia, India continues to be a bright spot given the positive macro backdrop. Valuations remain full, but we continue to see opportunities from a selective bottom-up approach in high quality companies benefitting from structural tailwinds.
“We are also positive about the longer-term outlook of the technology sector, albeit sentiment across the tech supply chain has weakened because of concerns over US recession risk and weakness in the smartphone and PC segments. Longer-term, we see structural growth in generative AI, which might mean a multi-year structural demand for data centre content and infrastructure upgrades, boding well for the advanced semiconductor sector.
“In terms of our portfolio, we have responded to market dislocations introducing and adding to names with greater near-term earnings visibility and steady cash flow generation, while actively reducing and exiting names where earnings are less visible. We maintain our conviction in our companies and their ability to navigate the various crosswinds buffeting markets, given their fundamental quality characteristics.
“Stepping back, we continue to believe that Asia remains home to some of the most resilient and dynamic companies in the world. The region continues to offer rich pickings, underpinned by long-term structural growth trends such as the rising middle classes, rapid adoption of emerging technologies and continued urbanisation, enabling bottom[1]up stock pickers like us to deliver sustainable returns over the long term.”