25 September 2018

Asset Allocation in Focus Autumn 2018

As part of our focus on providing a high quality, personalised investment service, we look to support our investment managers in their decision making when it comes to constructing client portfolios.


As part of our focus on providing a high quality, personalised investment service, we look to support our investment managers in their decision making when it comes to constructing client portfolios. Our asset allocation committee is one example of this, via their monthly output showcasing their views on a global sectorial basis.

The Asset Allocation Committee, which consists of three members of our research team and a number of investment managers, aims to provide a view on the asset allocation that seems most suitable in current macro conditions. The output of the monthly meetings remains a suggested stance and it is important to note, that the views expressed are not those of the firm but rather those of the committee and that the views expressed may not necessarily be those of your individual investment manager.

Here we present a snapshot of the current views.

Fixed Income

UK Government Bonds - conventional gilts

 

We think that inflation expectations are now going to moderate given that the pound has found a base. This drives us to extend our preferred maturity to six years.

UK Corporate Bonds

 

Investment grade bonds with the shortest maturities are preferred, within the constraints of income requirements. 

UK Government Bonds - Index linked gilts

 

In line with conventional gilts, the preferred maturity gets pushed out to five years. We are one year shorter than conventional gilts because of the risk that the RPI calculation gets re-based.


UK Equities
 

Materials

 

Global growth should support the sector, however ongoing trade wars are of some concern.

 

Consumer Staples 

 

We like this sector for its defensive qualities, recent weakness offers buying opportunities. 

Consumer Discretionary

 

Incumbents continue to be challenged by disruptive technology and changing consumer behaviour. Selective opportunities are on offer however.

Financials – ex Banks, Insurance & Property

 

This includes a broad range of stocks which are generally geared into the cycle. Be aware of macroeconomic concerns.

Financials – Banks 

 

Prefer globally exposed banks to domestic, look for beneficiaries of rising rates.

 

Financials – Life Insurance

 

Supportive demographics, particularly internationally, however the sector is vulnerable to market correction.

Real Estate

 

Global real estate may offer better value but we caution on bond proxy status. 

Health Care 

 

Growth and defensive attributes and global demographic tailwind. Distinguish between pharma/healthcare/biotech sub sectors.

Industrials

 

Potential for some profit taking on valuation grounds at this stage of the cycle. 

Energy

 

Robust global demand should help to underpin prices. Dividends looking more secure with oil at current levels, however valuations appear up with events.

Information technology 

 

Prefer both funds and international blue chips for exposure to specific tech themes. Long term attractions of the sector are clear.

Telecommunications

 

Capex and competition remains an issue. Persistent underperformance an issue. Yields may come under pressure.

Utilities

 

Bond proxy. Political risk. High gearing. However valuations may now be starting to reflect the uncertainty.

Alternatives

Absolute Return

 

Exposure might be appropriate given current market conditions. We suggest caution on the "yield hunt" and are wary of lower quality products.

Infrastructure

 

Investors should be cautious when looking for yield and pay close scrutiny to the quality of the investment product and premiums.

 

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