Portfolio manager Talib Sheikh provides an update on recent positioning moves within Fidelity ’ s multi asset income range , highlighting the increased exposure to defensive quality income equities . He also shines a light on how the team are viewing and responding to the macro environment .

Macro backdrop

Why are interest rates higher today than they were a decade ago ? The reality is that inflation has fallen , but it ’ s still much higher than it has been historically .

We believe we ’ re in a new regime where interest rates are higher , inflation is likely to be higher , and the coming months and years will require a more diversified approach to multi-asset income investing than the previous decade .

At the moment , interest rates look likely to fall over the coming years . We don ' t expect them to go back to the zero-interest rate environment that we saw post the great financial crisis .

But we do think inflation is on the way down . Central banks including the Fed and the BoE have the opportunity to lower interest rates further from here .

Business cycles seem to have become more de-synchronised . If we think back to where we ' ve been over the last year , the Chinese economy has been poor whereas the US economy has performed strongly . In addition , the European and UK economies have been lacklustre and that creates opportunities for asset allocators to try and find value in the disparity .

There are two broad components to inflation . The first is goods inflation , which depends on short-term inflation expectations and import prices . There was a big rise in goods inflation in the post-Covid opening , due to the disruption caused to supply chains . To some degree that has normalised , and it could be argued that this has helped drive headline inflation lower .

The other part is service inflation - how much people pay for goods and services that are much harder to trade across economies and across borders . That has been falling but remains sticky . When you look at the Bank of England ( BoE ) or the US Federal Reserve , it ' s services inflation that they ' re worried about , and it ’ s much harder to influence .

Closer to home , UK assets have been out of favour with global investors for a prolonged period . The FTSE 100 tends to have companies

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