11 December 2019

Asset Allocation Focus in Winter 2019

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 consist 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.



We turned more cautious following a strong first half of 2019 as macro economic indicators suggest global economy stuttering. Dividend attractions however remain and balance sheets are not stretched.


We like the sector for its defensive attributes and high quality businesses. However, we are wary of valuations and the sector’s vulnerability to rising interest rates.


Focus on the disrupting companies and high quality brands. Structural growth and rising wages should support the sector. Note Amazon represents 15% of this sector.

ex Banks, Life Insurance, Property

This includes a broad range of stocks which are generally geared to investment markets. Valuations now reflect the cautious lower growth outlook.


Uncertain domestic outlook, falling interest rates globally and a stuttering economy makes us reluctant to add to this sector. We see structural as well as cyclical headwinds for the sector.


Some discounts in the UK are at historically wide levels due to Brexit concerns and structural issues facing the high street however we do see emerging value in some of the niche/ specialist areas of the sector which is where our focus is. We recently upgraded the sector.

Life Insurance

Supportive demographics, particularly internationally, however valuations appear fair value.

Real Estate

Global real estate may offer better value but again 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.


Valuations look more reasonable following the correction in 2018 but watch out for value traps eg. low price/earnings cyclicals as economic backdrop not supportive for the sector.


Oil price supportive for dividends between $55-$65 however supply/demand dynamics look less supportive for capital growth or capital expenditure expansion. Possible headwinds also from an environmental, social governance perspective.

Information Technology

Traditional tech firms - Apple, Microsoft (make up 24%) with Visa, Intel, Cisco - be selective.

Communication Services

New restructured sector - Alphabet, Facebook, Netflix, Tencent (make up 30%) included with Verizon, AT&T, Disney and Comcast - be selective and focus on quality compounders eg. Disney.


Valuations now reflecting political uncertainty in UK. UK interest rates unlikely to move considerably from current level.





Heightened political risk means that we expect near term volatility, although on balance the greater risk is to the upside, both in high quality domestic names and overseas earners. While sterling weakness continues to make UK assets a target for opportunistic overseas buyers, we should be cognisant of our exposure to overseas earnings in case we see a lifting of headwinds and a strengthening in sterling. 



North America


Remains in a fundamentally sound economic position which includes reasonable growth, low unemployment, real wage inflation and a more dovish Fed. That being said we are wary that a positive outcome to the trade war and the impact of looser monetary policy is increasingly priced in. 



We remain underweight domestic European stocks due to longer term structural concerns, such as political risk, higher unemployment and subdued inflation and economic growth. Accommodative monetary policy has supported equities for now, but the long term efficacy of this policy in the absence of fiscal stimulus remains to be seen.



We see similar structural concerns to those in Europe whilst also note lower conviction on our expectation for Chinese stimulus (a key export partner).

Asia Pacific


We are concerned around the risk of escalating trade wars and hold a lower conviction on the impact that Chinese stimulus will have. Whilst we continue to see it in the interest of both parties (the US and China) to agree a trade truce, we would ascribe a low likelihood of a near term resolution. 

Emerging Markets


As for Asia Pacific, we are concerned around the risk of escalating trade wars and hold a lower conviction on our expectation for significant Chinese stimulus.





While we see limited risk of interest rate rises in the foreseeable future, the negative real yields on o er make this an unattractive investment at present.



Despite the current interest rate outlook reducing credit risk, we see spreads as offering little value without much downside protection. 

Index Linked


Inflation has been subdued for some time but at a time when real yields on conventional gilts are negative preference is for index-linked gilts.





We have returned to a neutral position for cash as we feel that provides us with sufficient optionality at a time of heightened volatility.





The sector generally trades at a large discount to net asset value due to Brexit concerns, structural challenges to bricks and mortar retailers, and the risk of higher inflation and interest rates in the future. Nevertheless, there are specific opportunities in high quality names to increase exposure to sterling at a level where the downside risk is limited.





Bottom up selection is key in this heterogenous sector. While real yields remain negative we would highlight infrastructure and gold as potentially better diversifiers than cash or conventional gilts.





Understanding Finance

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