Caspar Rock, Chief Investment Officer at Cazenove Capital, said: “Stronger-than-average economic growth and rising earnings should continue to support shares, but growth rates will be slower than in 2021.
“While valuations are at historically high levels, equities still look better value than bonds and we believe they are more likely to generate positive real (inflation adjusted) returns. Higher quality companies look attractive in a more inflationary environment. The environment for government bonds could be more challenging with nominal and real yields moving higher from exceptionally low levels as interest rates start to rise.
“Alternative assets can help better protect portfolios against inflation and market drawdowns in the current environment. Defensive assets such as gold and absolute return funds can help mitigate the risk of a market correction, whilst commodities can hedge against sharp rises in inflation. Risks to the outlook remain due to the impact of Covid-19, geopolitical tensions and a worse-than-expected slowdown in China.”
Private Assets
Cazenove Capital is seeing increasing interest from clients in private markets, which have continued to grow in size and relevance. Today 88% of family offices and foundations have an allocation to private equity of more than 10%, with over 60%¹ planning to increase their allocations over the next year. Private equity saw strong returns in 2021 with IPOs dominating exit markets and rewarding investors with high valuations.
Luca Serino, Private Assets Investment Director at Cazenove Capital said: “It is important to adopt a systematic approach to committing capital over a number of years when investing in private markets to mitigate vintage-year risk, particularly after a period of such strong returns. As ever, manager selection remains a decisive factor. To ensure that clients have diversified private asset portfolios, we invest in a broad range of assets classes including Private Equity, Private Debt, Real Estate and Infrastructure.”
Sustainability
Cazenove Capital has more than doubled assets under management following sustainable investment strategies since 2018². The Responsible Multi-Assets Fund, Cazenove Capital’s Sustainable Charity Fund launched in 2018, saw its assets grow 228% last year, from £245m to £805m².
Two key sustainable themes where Cazenove Capital sees opportunities for clients in 2022 are:
- A social theme: sustainable healthcare: Global government healthcare expenditure is steadily increasing, costs for individuals are rising despite governments footing more of the bill, and nearly 75% of healthcare costs are spent on patient care3. Cazenove Capital believes that in order for a healthcare system to be sustainable, all stakeholder needs must be addressed.
- An environmental theme: sustainable infrastructure: A change in infrastructure spending is required to achieve a 2C scenario4 and clients can play a key role in providing capital. For example, CO2 intensity of the cement production required to allow for more infrastructure to be built must decline by 3% per annum to achieve net zero by 20505. Cazenove Capital believes renewables will significantly increase their market share across all scenarios by 2050, against this backdrop.
Catherine Hampton, Sustainable Investment Lead at Cazenove Capital, said: “The COP26 conference has created a greater desire for clients to invest to make a difference. Themes dominating our conversations with them include investing to support Net Zero targets, a Just Transition and Biodiversity outcomes.
“We will be closely monitoring development around each of these themes to identify attractive investment opportunities and will continue to engage with companies to influence change for the better.”
