12 June 2020

Asset Allocation Focus in Summer 2020

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 basis; this is then complemented by a sectoral view from the stock selection committee. The combination of these top down and bottom up opinions is an important resource for our investment managers to validate their own investment theses or to generate new investment ideas.

These committees, which consists of members of our research team and a number of investment managers, aim to provide a view that seems most suitable in the current climate. The output of the monthly meetings remains a suggested stance and it is important to note, that the views expressed are those of the committees and may not necessarily be those of your individual investment manager.
Here we present a snapshot of the current views.




Coronavirus has impacted commodity prices. Evidence shows Chinese demand coming back and there are early signs of stabilisation in commodity markets. Majors with strongest balance sheets should continue to pay dividends. 


We like the sector for its defensive attributes and high quality businesses and it has shown its resilience over the last few months. However, valuations do not look that compelling and so retain a neutral stance.


There are many high quality companies in the sector however we acknowledge the short term negative impact of coronavirus on airlines, luxury, entertainment and travel sectors. Avoid these for now but look for buying opportunities in those names with structural and disruptive growth characteristics.

ex Banks, Life Insurance, Property

This includes a broad range of stocks which are generally geared to investment markets. Valuations not at a level to turn more positive.


High levels of regulation, falling interest rates globally and recessionary conditions makes us reluctant to turn positive yet. Longer term structural headwinds as well as no dividend support for next 12 months. We think balance sheets generally are solid enough to endure the current crisis.


Whilst acknowledging the structural difficulties on the high street and concerns over liquidity in open ended vehicles, we do see value in some areas. We would rather see more visibility on timeline for lockdowns before becoming positive again.

Life Insurance

We see these companies needing to hold more regulatory capital post Covid-19 and with their geared balance sheets we are concerned equity investors will not see value creation for sometime.

Real Estate

Global real estate may offer better value. Caution on bond proxy status.

Health Care 

Growth and defensive attributes and global demographic tailwind.  Distinguish between pharma/healthcare/biotech sub sectors.  Remains a key theme for medium term, reinforced by current crisis.


We had hoped for a full rebound in manufacturing cycle however coronavirus will delay this. Focus on high quality defensive names for now and hold through until certainty returns.


Sector under pressure as supply/demand dynamics look less supportive for capital growth or capex expansion. Coronavirus impacting the oil price and further headwinds from social investment perspectives. 

Information Technology

We are positive but be selective and wait for market weakness to add to the quality names.

Communication Services

Recently restructured sector - be selective and focus on quality stocks and avoid traditional telcos.


Sector has seen some safe haven support however is not immune from the slowdown as business customers suffer.





We acknowledge Brexit risk which could still yet rear its head.  There is also a risk that a Brexit inspired run on the pound could make overseas investment more attractive.  That said UK equities look like good value on a relative basis. 



North America


Given that pressure on the Chinese may turn to vilifying Xi for his early cover-up, this allows Trump to take the pressure off the trade war rhetoric.  We are less wary that China will cause problems into the next election because they fear a Democrat government more than Trump. This puts Iran, as a potential trouble-maker, on hold as well.  Caution on how the FAANGs dominate the indices and the risk that the coronavirus does more damage to the US on a relative basis. 



The inability of Europe to agree a substantial fiscal package will hamper the continent. Public pressure is driving corporates to update their business processes which in turn could increase the cost of capital and lower returns. If the next round of Chinese stimulus is more focussed on domestic consumer demand, rather than infrastructure spending, then this could dent expectations for an export led recovery. 



On the one hand, Japan has been out of the trade war news and the Yen has started performing in safe harbour mode as the coronavirus episode has dragged on. On the other, we are still wary of much needed corporate reform delivering on its promises.

Asia Pacific


China is not imploding under a debt burden as many once feared.  Instead, leveraging is supporting the economy in a co-ordinated way.  China was first into the coronavirus and should be first out in a way that leads the region.  We hope that if the trade war morphs into a war of diplomatic words around China's handling of coronavirus in the early days, that this will help the region.

Emerging Markets


Extreme USD strength is no longer a concern but there is the risk that a weak Renminbi will pull other emerging markets' currencies down. Argentinean contagion is a worry and raises the risk premium. Trump taking trade war to South America would not help. 





We have reached the stage with conventional gilts that they are now being described as return free risk.  Yields on the ten year are now at 0.17% and the Debt Management Office recently sold some three year gilts on a negative yield. If interest rates climb from these low levels there is only downside risk.



Given our overweight equity position we would prefer to be underweight corporate bonds. There is a possibility that corporate spreads could reduce further.

Index Linked


The market is pricing in weak inflation but we think that there is a risk that the monetary stimulus to combat coronavirus could cause an overshoot in inflation by year end. That would be good for linkers.  Be wary of buying maturities beyond 2035 due to RPI methodology change risk.





We are underweight cash because it does not produce a yield and there is sufficient opportunity elsewhere.





We weigh up many factors including Brexit risk, valuation and weak interest rates helping demand.  Overall the commercial slant of most listed property assets leads us to dislike the sector for the time being.  





We have been favourable towards gold and infrastructure within the sector of asset allocation and remain so.

Managing your wealth

Managing your wealth

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