Asset Allocation Focus in Winter 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 and we favour those with structural and disruptive growth characteristics with an online presence. We like the sector based on these businesses emerging from the current recession stronger, with many new and retained customers.

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 foreseeable future. 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 from the impact of easing 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 and Covid-19 impact.

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 the manufacturing cycle however the pandemic will delay this. Focus on high quality defensive names for now and hold until certainty returns. May be signs of a nascent recovery driven by Asian economies.


Structually the sector remains under pressure, but short term catalysts lead us to be more constructive.

Information Technology

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

Communication Services

Be selective and focus on quality compounders and avoid traditional telcos.


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





We acknowledge that Brexit risk could still yet rear its head and drive a run on the pound that would make overseas investment more attractive. The cyclical rally in financials, banks and oils is now playing out, but longer term, we want to see the UK’s larger service sector return to growth before being more positive.



North America


Whilst we remain over-weight non-UK equites, we downgraded North America to neutral during the quarter. The election result has been positive for investors with expectations of smaller fiscal stimulus more than balanced by expectations that the Fed will keep rates lower for longer. Expectations of a Republican Senate mean that left wing shareholder value-destroying legislation is unlikely.  We expect more upside but there is now potential for non-tech and non-US universes to catch up.  We don’t see North America out-performing as it has done in the past.



We upgraded Europe to neutral following their EUR 750 billion support package, although the approval process is being slowed by Austria and Poland. Public pressure is driving corporates to focus on sustainability, which 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.    



We upgraded to neutral as Japan has been out of the trade war news and the yen has the potential for reverting to safe harbour mode if vaccines disappoint. We hope for corporate reforms delivering on their promises and driving higher returns.  More share buy backs will also help. We also think valuations will deter international sales of Japanese equities as will Suga's continuation of Abenomics.

Asia Pacific


China is not imploding under a debt burden as many once feared.  Instead, leverage is supporting the economy in a co-ordinated way which we expect to be supportive for Asia Pacific equities. China was first into the COVID 19 pandemic and should be first out in a way that leads the region. Recent data has been encouraging and we expect prospects to improve further.  

Emerging Markets


Extreme USD strength is obviously no longer a concern and a gradual improvement in commodity prices, linked to a Chinese infrastructure stimulus, could help those emerging markets more sensitive to commodity exports. Argentinean contagion is a worry and raises the risk premium.  Ongoing tensions between India and China should not be forgotten and remain a risk. 





We have reached the stage with conventional gilts that they are now being described as return free risk. Ten year gilt yields are now at 0.32%. We don’t see ten year rates going negative and if interest rates climb from these levels there is greater 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 but we think the upside from spread contraction has probably reached its limit. 

Index Linked


Linkers are a good hedge against the low probability event of higher than expected inflation. It is not beyond the realms of possibility that the recent strong money creation could drive inflation above current expectations.  





We went to neutral cash before the US election and will look to deploy the cash on any pull-back. 





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 this sector and remain so.

Managing your wealth

Managing your wealth

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.

Also in this issue

We asked George Burnand of JMChase Property Search to give us his views of the residential property market in the shadows of an extraordinary year.

The lack of face-to-face contact this year has brought the full benefits of our client portal to the fore. Being able to access a valuation of your portfolio(s) at the touch of a button, access all…

With a new prime minister in place, we asked Sam Perry, an investment manager at Pictet Asset Management, to share his thoughts on Japan’s fortunes.