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Liontrust Asset Management : Market reaction to Fed statement creates opportunities

01/27/2022 | 08:49am EDT

The Federal Reserve refrained from raising rates in yesterday's policy announcement, but it did signal both an end to asset purchases and a rate increase for March. No news there.

However, Fed Chair Powell did not deny the possibility of hikes to interest rates at each policy meeting this year. If it happens, that would be roughly double the increase the market had been expecting.

Needless to say, the impact so far has been to further weaken risk assets and continue the growth-to-value rotation. There are also increasing signs the general market is worried about the possible extent of action, with major equity indices moving into negative territory year-to-date.

Bond yields, especially US ones, have risen. Short-dated yields are back around 18-month highs. Having been bearish for most of that period, we are starting to believe we will see positive returns from the short end of the US market over the coming year and we are likely to shift our portfolios more into this part of the market.

US 5-year Treasury yields have reached about 1.7%. We would not call them cheap at this level, but while yields could move higher still, we think any capital loss is unlikely to outweigh the income on these bonds. Furthermore, the market has now priced in five 0.25% rate hikes this year, so the risk of an upward adjustment in rate expectations is much less than it was.

While we're moving back into US short-dated bonds, we still think long-dated bonds are too expensive. The Fed is expected to raise rates to 2.5% by the end of 2023, so to have a 30-year yield well below this level is surprising. The market clearly thinks that short-term rate hikes may need to be unwound in the future if they threaten the economic recovery. We disagree. We think the economy can withstand higher rates and we should prepare for 'higher for longer'.

While we think 30-year bonds are expensive, we think it could take longer for the market to come round to our thinking. We wouldn't be shocked if yield curves flattened more, or even inverted, with the 30-year yield moving below the 5-year yield. The US 5-year currently yields around 40 basis points more than the 30-year; about half the long-term average. If yields do flatten further, or invert, we may look to implement a 'curve steepener': shorting longer maturity bonds while staying long of 5-year bonds.

Moving away from the US, there are close to 4 hikes expected in the UK. We continue to avoid UK gilts and don't have many sterling corporate bonds. The UK market in isolation looks highly vulnerable to aggressive rate hikes, especially in the wake of the US move. We continue to recommend getting out of gilts despite their appalling performance in recent times.

For a comprehensive list of common financial words and terms, see our glossary here.

Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. Investment in Funds managed by the Global Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.


This information should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Thursday, January 27, 2022, 1:29 PM


Liontrust Asset Management plc published this content on 27 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 January 2022 13:48:06 UTC.

© Publicnow 2022
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Sales 2022 222 M 280 M 280 M
Net income 2022 56,0 M 70,5 M 70,5 M
Net cash 2022 106 M 134 M 134 M
P/E ratio 2022 9,41x
Yield 2022 6,00%
Capitalization 648 M 816 M 816 M
EV / Sales 2022 2,44x
EV / Sales 2023 2,03x
Nbr of Employees 183
Free-Float 94,5%
Duration : Period :
Liontrust Asset Management PLC Technical Analysis Chart | LIO | GB0007388407 | MarketScreener
Technical analysis trends LIONTRUST ASSET MANAGEMENT PLC
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 6
Last Close Price 1 068,00 GBX
Average target price 1 905,00 GBX
Spread / Average Target 78,4%
EPS Revisions
Managers and Directors
John Stephen Ions Chief Executive Officer & Executive Director
Vinay Kumar Abrol Chief Operating Officer, CFO & Executive Director
Alastair William Stewart Barbour Non-Executive Chairman
David Little Head-Technology
Ross Carmichael Chief Technology Officer
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