31 January 2024
Alternatives Quarterly Views - Q1 2024
Market review Q3 2023*
During Q3 2023 traditional asset classes delivered weak performance, with Global Equities down 3.4% and Global government bonds down 2.9%**. Consequently, the 60/40 balanced portfolio lost 3.2% during Q3. The yield on 10-year German government bonds increased during Q3 from 2.4% to 2.8%. Alternatives performed relatively well in this context. Alternative credit posted strong total returns in Q3 as elevated interest rates drove coupon income higher while credit default rates remained relatively low. Corporate direct lending was up 3.3%, followed by Structured credit (+2.8%) and Corporate distressed debt (+1.1%). Real assets continue to see a repricing of their asset valuations due to higher interest rates (and inflation), leading to mildly negative total returns in Q3, with Private Real Estate equity (-0.8%), Private Infrastructure equity (-1.2%), and Private Farmland (-0.8%). Private Equity delivered +0.6%.
Macro-economic outlook for 2024
For H1 2024, we expect macro uncertainty and relatively high interest rate volatility to prevail. We expect growth to decelerate further, and contrary to the markets’ narrative of a ‘soft landing’, to a mild recession in the US and Europe, with a recovery in the latter part of 2024. While inflation continues to face upward pressure from longer-term structural trends such as demographics and sustainable transitions, we expect it to moderate further in the next quarters given the cycle. Central banks are likely done hiking rates but the path for base rate cuts remains uncertain. Meanwhile geopolitical tail risks are increasing, from Ukraine to the Middle East. Once macro uncertainty fades later in 2024, greater certainty on borrowing costs could drive a stabilization in valuations, and subsequently improve transaction activity (a release of dry powder and more exits).
Asset class outlook (6-12 months’ horizon)
Within Alternative credit, we have a constructive view on Structured credit and Corporate distressed debt, while we have a neutral view on Corporate direct lending. Within Real assets, we have a constructive view on Private infrastructure and Private Farmland but remain cautious on Private Real Estate equity. We remain careful with Private equity, although we note that private equity funds could benefit from lower entry valuations.
* Alternatives’ indices are typically released with a one-quarter time lag due to their less liquid nature.
** Global Equities: MSCI ACWI Net Total return USD index; Global government bonds: ICE BofA Global government bond index (W0G1).
Disclaimer
This publication of Van Lanschot Kempen Investment Management (VLK Investment Management) is distributed for information purposes only. The information in this document is incomplete without the verbal explanation given by an employee of VLK Investment Management. VLK Investment Management is licensed as a manager of various UCITS and AIFs and authorized to provide investment services, and, as such, is subject to supervision by the Netherlands Authority for Financial Markets. VLK Investment Management explicitly wants to prevent the benchmarks being used in this publication from being published or made available to the public within the meaning of the Benchmark regulation. Therefore, the benchmark data in this publication is made available to you, exclusively to internal business and non-commercial purposes.
This publication may at no time be viewed as an offer and you cannot derive any rights from this publication. Views expressed are those of the Investment Strategy & Research team at VLK Investment Management as of September 2023, are subject to change at any time. Any forward looking statements are not reliable indicators of future events, and no guarantee is given that such activities will occur as expected or at all. The external sources used to produce this publication were selected with great care and in good faith. We cannot guarantee that the information and data from these sources is up-to-date, correct and exhaustive. We accept no liability for printing and typing errors.
No part of this presentation may be redistributed or reproduced, in whole or in part, without prior permission from VLK Investment Management and VLK Investment Management accepts no liability whatsoever for the actions of third parties in this respect. We are not obliged to update or amend the contents in this publication. All investments involve risk, including possible loss of principal
This publication of Van Lanschot Kempen Investment Management (VLK Investment Management) is distributed for information purposes only. The information in this document is incomplete without the verbal explanation given by an employee of VLK Investment Management. VLK Investment Management is licensed as a manager of various UCITS and AIFs and authorized to provide investment services, and, as such, is subject to supervision by the Netherlands Authority for Financial Markets. VLK Investment Management explicitly wants to prevent the benchmarks being used in this publication from being published or made available to the public within the meaning of the Benchmark regulation. Therefore, the benchmark data in this publication is made available to you, exclusively to internal business and non-commercial purposes.
This publication may at no time be viewed as an offer and you cannot derive any rights from this publication. Views expressed are those of the Investment Strategy & Research team at VLK Investment Management as of September 2023, are subject to change at any time. Any forward looking statements are not reliable indicators of future events, and no guarantee is given that such activities will occur as expected or at all. The external sources used to produce this publication were selected with great care and in good faith. We cannot guarantee that the information and data from these sources is up-to-date, correct and exhaustive. We accept no liability for printing and typing errors.
No part of this presentation may be redistributed or reproduced, in whole or in part, without prior permission from VLK Investment Management and VLK Investment Management accepts no liability whatsoever for the actions of third parties in this respect. We are not obliged to update or amend the contents in this publication. All investments involve risk, including possible loss of principal
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