At the beginning of 2013, we highlighted several significant dynamic value opportunities across global asset markets – we were positive on global equities and high yield credit and negative on developed world government bonds.  Year-to-date developed market equities have returned 25.8%, high yield spreads have fallen by 93bps and 10-year US treasury yields have risen by 98bps. This market price action has reduced the value and prospective returns in equities and increased the value in government bonds.

In our feature article this month we recommend that investors that are overweight equity relative to their strategic benchmark take their profits and move back to their benchmark. Our economic and earnings forecasts are now broadly consistent with what is priced-in to equity markets. That is, we think the remaining value in developed equity markets is now much more modest. We have retained our moderately attractive rating for world equity, although prices are now close to the threshold at which we would move to neutral. This is principally due to our positive outlook for emerging market equities and modest value in European markets relative to the US.