16 December 2022

Asset Allocation Focus in Winter 2022

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 expect elevated demand for online services to fall back and consumers shift their spending habits. Digital advertising growth is also expected to slow versus 2021 as marketing spend moderates and instead corporates review discretionary spend in the face of rising geopolitical concerns. 

Consumer Discretionary


Consumer sentiment has deteriorated rapidly  with rising energy and food prices undermining consumer confidence and savings buffers have been eaten into; hastening a switch from discretionary spend towards more essential everyday spending.

Consumer Staples


Consumer Staples businesses tend to be of high quality and more economically resilient during market turbulence. Sector valuations look fair in the context of history and whilst the sector faces rising input cost inflation we have seen evidence of inflation pass-through to customers. 



Longer term Environmental, Social and Governance (ESG) considerations have fallen to the back of investors' concerns as the Ukrainian geopolitical situation has forced investors to focus on short term supply. With energy prices heavily correlated to GDP, we have become less constructive on the performance of the sector. Capital returns to shareholders should nonetheless remain strong. 

Financials - Banks


US banks have enjoyed good performance on the back of strong balance sheet growth prospects and are now retracing as Ukraine delivers a shock to growth expectations and margin expansion. Higher inflation is likely to tame demand, reducing the need to hike interest rates. European banks are more exposed to Russia and suffer from large national debt and higher rates driving declines in their loan books. Margin expansion expectations for UK banks has been lowered given the diminished growth outlook.

Diversified Financials  

Many names are high quality but valuations are not at a level to turn more positive.


Life insurance companies benefit from a steepening yield curve but with higher rate expectations softening, we think neutral remains the correct stance.

Health Care  

Demographic tailwinds and relative resilience of global healthcare spend mean this is a sector with growth and defensive attributes. Valuations have become stretched in growth names and those which have benefited from the pandemic. However, a greater weighting is to those negatively effected by the pandemic i.e. elective surgery names. Such companies still offer reasonable valuations, defensive earnings and encouraging long term growth outlooks.


Global industrial production forecasts, although still positive, have fallen in recent months as supply chain disruptions and heightened cost inflation pressures weigh on broader economic growth.

Information Technology  

Valuations contracted over the past year but are now more reasonable. We take confidence from the resilience of technology names whose products are being classed as non-discretionary by consumers and businesses.


Majors with solid balance sheets should continue to pay strong dividends. The short term outlook is clouded by weakness in Chinese demand, driven by the property market crisis. Recession fears now cloud the outlook which historically led to reduced demand for commodities. The other big issue is input costs, although this problem is baked into consensus numbers. Longer term we remain bullish on energy transition metals e.g. copper.

Real Estate  

Global real estate may offer better value than other fixed income instruments but rising rates can feed through to mortgage rates, with the subsequent fall in demand for real estate hitting property valuations.


The sector has some safe haven support, however it is not immune from the slowdown as business customers suffer. Rising power prices are good for producers however the suggestion of windfall taxes to reduce the impact on consumers may keep a lid on this. There is some inflation protection in pricing however rising bond yields could provide a headwind to the sector which is viewed as a bond proxy.





UK equities offer good value for long term investors and we prefer large cap UK equities with more overseas earnings because Sterling weakness should mean translated overseas earnings are greater in Sterling terms. The U-turn on fiscal policy which, whilst welcomed by financial markets in terms of financial credibility, does heighten the likelihood of deeper domestic economic recession that would hurt smaller domestically focused companies more so. The UK also appears favourable in the prevailing economic downturn. Relatively more exposure to: Consumer Staples which tend to show greater resilience in recessions; Financials which typically benefit from rising interest rates because of the widening differential between lending and deposit rates and, Energy & Materials sectors which are typically considered better insulators under inflationary times.



North America


There are structural reasons to like US equities such as their higher returns on capital and, higher earnings growth track record. Despite this, we have moved underweight US equities due to expensive relative valuations to other developed equity markets and growing concerns about US Dollar overvaluation.  It remains clear that the Fed will continue hiking interest rates to tackle the high level of US inflation brought about by rising wage pressures from the tight US labour market.



Continental Europe remains concerning and heightened political risks are never too far away. Europe is a pro-cyclical equity market and hence vulnerable to global recession. Forward looking economic indicators for the Eurozone remain downbeat and the read across from weaker business and consumer confidence indicators may be that earnings expectations for the Eurozone remain too optimistic for 2023. 



Slow economic recovery out of the pandemic has endured. Manufacturing and Service sector output remains in expansionary territory in contradiction to many major economies and business confidence has been on an upward trend whilst the BoJ has remained steadfast in their commitment to keep Japanese interest rates very low. 

Asia Pacific


Geopolitical flashpoints between the West and East are driving a fundamental rethink around supply chain exposures and dependencies. This is a multi-year theme but we increasingly hear about international companies exploring ways to diversify their supply chains outside of China into Asia Pacific more broadly.

Emerging Markets


Valuation remains supportive at the index level versus developed markets but, we note the strong US Dollar hurts emerging market liquidity and China remains pre-occupied with another resurgence of COVID cases.





Whilst underweight, we increased exposure to shorter dated government bonds offering higher yields resulting in a better duration profile against the tide of rising rates.



We remain underweight corporate bonds but have actively reduced the extent of our underweight to reflect the higher yields offered by corporate bonds vs. government bonds of similar maturities. 

Index Linked


Offering a positive real return and whilst expensive, they are a necessary protection against inflation. 





Tactically, we are overweight cash in this challenging market environment. 





Real estate offers up some level of natural inflation protection but high levels of inflation have historically undermined real estate because of the impact of rising interest rates.





We continue to seek some assets that are less correlated to our equity and fixed income holdings. For example, we continue to hold gold as a means to diversify portfolios.

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