Money matters

Asset Allocation - Investment Outlook 2024

Global markets recovered well towards the end of 2023. And with some central banks pausing interest rate hikes towards the end of last year, there are signs that they may have reached their peak. So, what does 2024 hold for financial markets? And where should investors look for opportunities?

In this Investment Outlook, we also take a look at:

Interest rates

Corporate earnings

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The value of investments can fall as well as rise, and you may not get back the full amount you invest. Eligibility critera, fees and charges apply. Information on this page as collated and published in January 2024. You should continue to hold cash for your short-term needs.

Section 3

Asset allocation

Fund positioning

Our funds are positioned to capture the positive outcomes seen in the business cycle while earning the bond yields of a higher interest rate environment.

As such, our investments lean towards risky assets, more specifically global equities which are heavy in US stocks. In addition, we retain a preference for high-quality, multi-national companies that can best manoeuvre the current environment.

2024 opportunities

Here are key areas where we see potential opportunities this year:

European bonds

Europe is much closer to a recession than the US, which should support European bonds as bond yields are more likely to fall, meaning prices would rise.

Small-caps

Smaller companies were on our watch list last year, but we didn’t include them in our client portfolios and funds as rising interest rates created headwind challenges. But with those interest rate hikes ending, the outlook has improved for such firms. And smaller company valuations are at historically cheap levels, creating the chance to get good deals.

Responsible investing

We take a responsible investing approach within our NatWest Invest funds. This means we consider environmental, social and governance (ESG) factors when making investment decisions.

While we believe responsible investing remains a priority, there were media reports last year suggesting it was going out of fashion and being replaced with newer trends. There are, however, credible grounds for continuing to believe in the importance of sustainable investing.

Examples include:

the Intergovernmental Panel on Climate Change documenting how global temperatures continue to rise
unacceptably high rates of biodiversity loss, according to the United Nations Environment Programme
increased levels of extreme poverty found in research by the International Monetary Fund.

Because these aren’t going to be resolved overnight, there’s still a need for investing in change.

Managing risk

Asset managers have a fiduciary duty to clients to ensure that all investment decisions are made with their best interests in mind. A survey by The World Economic Forum found the leading risks for private-sector risk managers in their two and 10-year horizons are all ESG-related. Therefore, factoring ESG into investment decisions plays an important role when reducing downside risks within varying time frames.

Rebuilding trust

Many in the financial services industry have fallen foul of greenwashing – the overstating of ESG efforts within marketing. This has resulted in a loss of trust from investors in recent years and a demand in improved classification and transparency within sustainable investing.

Regulators are now working on creating standardisation, greater transparency and parameters around greenwashing, particularly regarding investment advice.

The UK’s regulator, the Financial Conduct Authority, released its Sustainability Disclosure Requirements in November last year. One significant change will be to determine if ESG-related labels, if any, are relevant to investment products.

Investors will benefit from this as they can make more informed investment decisions, cutting through the noise, and will hopefully result in the rebuilding of trust in responsible investing.

With these moves to help rebuild trust in mind, we believe sustainable investing is very much alive and remains an important way to mitigate risk and seize new opportunities when investing.

Investment Outlook 2024

View more insights from this year's investment outlook.

Investment Outlook 2024

Full report is available to download

Our Investment Outlook 2024 sums up the issues that affected the global economy in 2023 and looks ahead to where the best prospects of 2024 might lie.

Download the report

Interest rates

Section one

For investors, last year was all about central banks battling to bring rising inflation back down by hiking interest rates. This created a challenging macroeconomic environment for investors at the start of 2023.

Company profits are hit by higher borrowing costs when interest rates rise, as well as people being encouraged to save rather than spend. And existing bonds become worth less as new bonds come with higher yields. So higher interest rates can be bad for both stock and bond markets.

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Corporate earnings

Section two

Despite the US economy showing resilience in 2023, corporate earnings announcements (where companies release their quarterly performance figures) haven’t been as positive.

While companies have mostly managed to remain profitable, growth has been stagnant, which was to be expected against a backdrop of rising interest rates.

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