Advisers expect strong US returns despite warnings of over valuation

2 April 2024

Advisers are predicting a strong year for US equities, despite valuations residing at levels not seen since the dotcom era, says Aegon.

New research from the investment specialist found 49% of advisers believe US equities will provide the most significant returns for clients in 2024, closely followed by UK equities (44%) and emerging market equities (41%).

In contrast, commercial property was tipped to become the worst-performing asset class of 2024, with 60% of advisers citing this asset. Only 2% of advisers said they expect commercial property to generate the best returns for clients. Cash came in as the second worst performing asset (36%), followed by gilts (28%).

Despite advisers’ bullish stance on US equities, Aegon head of portfolio management Anthony McDonald said current valuations feel unsustainable.

“After outperforming for each of the last five years and being at the centre of the technology and AI revolution, US equities seem unstoppable at first sight and it seems reasonable to expect them to continue leading the market. However, on long-term valuation measures they are now expensive, trading at levels only previously seen in the dotcom and post-pandemic bubbles. This feels unsustainable and it is a key reason why we’re underweight in US equities.” he said.

“In contrast, UK equities look more reasonably valued. We’re particularly positive on smaller companies, which tend to be more sensitive to the domestic economy.”

McDonald said that despite facing stagnant growth over the past 18 months, the economic and market outlook for the UK may be “overly pessimistic” and said the number of advisers favouring UK equities in 2024 could be right to sense that “even a modest recovery could boost a market that seems to reflect low investor expectations.”

Looking at the year ahead, McDonald noted that high interest rates are likely to pose a headwind and structural post-pandemic changes to our working and consumption habits also represent challenges to established sectors, as well as opportunities elsewhere.

He added: “In the wake of ongoing market volatility, and with 2024 set to be a year of political change, it’s no surprise that advisers hold varying opinions on the best investment approach. But in uncertain times like these, expert input with a continued focus on diversification and long-term investment fundamentals is key when building client portfolios.”

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