However, prices are near record levels and corporate bonds are yielding the same as – or less than – the typical FTSE 100 company pays out in dividends. This makes the risk/reward trade-off in the more liquid parts of the bond market much less attractive than it was.
Investors who want to profit from the growth of the UK should bear in mind that the FTSE 100 sources more than three-quarters of its revenue from outside the UK. Targeting smaller-capitalisation companies in key sectors through an actively managed fund represents one intuitive way to do this.
As for valuations, UK equities look fairly priced, but not cheap. This suggests that future returns are likely to be more closely linked to growth in terms of earnings and the broader economy. This is a period when selectivity will be especially important, since not all companies will be similarly affected by the unusual currency movements we have seen.
In retrospect, investors in UK assets may even see the political uncertainty associated with the election as a positive for UK assets in 2015 – if it puts a check on sterling at a time when investors might have seen reason to buy the pound along with the dollar.
Kerry Craig is global market strategist of JP Morgan Asset Management
