Threadneedle April investment strategy

Bonds: Our positive view on gilts proved rewarding last month as they enjoyed a strong run and outpaced other government bond markets. On the technical side, March saw the beginning of quantitative easing and this should outweigh investors' fears of increased gilt issuance. The fundamentals, in terms of economic growth and inflation, remain favourable for gilts. In contrast, the poor economic environment is unhelpful for both investment grade and high yield corporate bonds, although the technicals have improved. Within investment grade there has been a lot of supply and new deals have come cheap to existing issues to get them away. Overall, valuations are the best in 100 years and more than compensate for historic default risk. High yield has seen no new supply and a limited increase in demand, although the number of fallen angels is a concern. Valuations are very compelling. Emerging market bonds appear relatively attractive. Weaker economic growth and falling inflation are enabling interest rates to fall but also suggest a weakening of local currencies.

Equities
The UK market has recovered from its lows of early March, led by miners and banks while defensive areas such as tobacco and utilities have lagged. We have added to financials outside the banking sector. Overall, we have sought to increase the beta of our portfolios and within the core funds have been raising the small cap weighting towards neutral.

The US market has enjoyed a significant rally. However, there still needs to be some stabilisation in the housing market. Over the coming months, there should be more clarity regarding the valuations of mortgage-backed securities on banks' balance sheets.
In early March, European markets dipped to a level 58% below their 2007 high but have since rallied from this oversold position on hopes that the stimulus measures will gradually feed through to the real economy. Banks and insurance companies have risen strongly while healthcare, food and beverage stocks have lagged. We have been adding to financials at the expense of industrials.

Japanese equities have rallied from their lows of 12 March. Investors have been trying to gauge whether the aggressive fiscal and monetary policies will gain some traction. However, the performance of the global economy remains crucial for Japan. Any significant yen weakness would provide some good stock specific opportunities.

Asian markets saw a strong broad-based rally in March, mainly fuelled by domestic investors. There was a tangible rotation out of defensive plays into more cyclical, high beta stocks, with the materials, IT and energy sectors performing well.

Within Latin America, Chile has been the best performing market year to date, reflecting the country's high domestic savings ratio, strong fiscal position and proactive monetary policy.

Property
With increasingly negative sentiment in the UK corporate sector, occupational demand across all sectors will continue to decline and vacancy rates will rise. However, the continued dearth of development finance availability will ensure that, with the exception of the City of London, the market will not see a repeat of the oversupply seen in the early 1990s.