Asset Allocation:
a snapshot

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.

 

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.

 

Fixed Income

UK Government Bonds

UK Corporate Bonds

 

Having been positive on conventional gilts relative to index-linked we now find that the risk reward profile is balanced. We are inclined to favour maturities in the four to twelve year range for both.

UK Indexed Linked Bonds

 

We prefer to hold five year duration BB bonds via funds for diversification, spread compression and tax reasons. We remain alert to liquidity risks in the bond markets. Spreads at the quality end of the spectrum have widened to a point where we think the reward is now commensurate with the risk.

UK Equities

UK Financial

 

Banks are being impacted by exposure to Oil & Gas so default rates are possibly set to rise. Within the sector, we favour the Life Insurers for their secular growth.

Consumer goods

 

Wage inflation and momentum in UK economy should continue to benefit the sector.

OIl & Gas

 

Given the unfavourable supply/demand dynamics we do not expect any improvement
until we see concrete production cuts announced.

Consumer services

 

Some interesting opportunities in Media and Leisure exist; we are still positive on consumer spending.

Industrials

 

Slowing global manufacturing continues to weigh on the sector for the time being. Overseas earnings could be a potential hedge on sterling.

Other Equities

US

 

We remain concerned by extended valuations and slowing earnings momentum as QE matures and the headwind of recent USD strength is felt. The threat of a forced rate reversal may cause short term volatility.

Europe

 

We continue to see some upside in the Eurozone generally; Europe is currently enjoying the tailwinds of QE and depressed borrowing costs and so we favour this region over the US.

Japan

 

We have little conviction as to Japan’s economic outlook as QE appears to have achieved limited long-term benefits for the underlying economy.

Asia/China

 

We continue to remain cautious on the Chinese economy as it undertakes a cyclical deleveraging, post an extensive domestic property boom and overcapacity. Any further devaluation of the yuan would trigger similar devaluations elsewhere in Asia.

Emerging Markets

 

We remain wary of EM currencies given the ongoing rally in the USD, although indecision by the Fed over future interest rate moves might see a relief rally.

Alternatives

Property

 

We are increasingly wary of bull market characteristics in the UK. There is anecdotal evidence of pent-up demand and signs of cyclical maturity.

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

 

As with absolute return, investors should be cautious when looking for yield and pay close scrutiny to the quality of the investment product.

 

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Royal Dutch Shell

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