Asset Allocation in focus

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

 

We see the re-emergence of inflation as a topic in the US and think that the same drivers will arise here. We prefer shorter dated index linked for the time being.

UK Corporate Bonds

 

Investment grade bonds with the shortest maturities are preferred, within the constraints of income requirements.

UK Indexed Linked Bonds

 

As with Gilts, we prefer shorter dated index linked bonds. GBP weakness will only work to boost inflation.

UK Equities

UK Financials

 

The sector could benefit in the short term from the strength of the UK economy.

 

Consumer goods

 

We like this sector for its defensive qualities, but are cautious on valuation of overseas earners.

Oil & Gas

 

Given the unfavourable supply/demand dynamics we do not expect any improvement until we see concrete production cuts announced. We do think we have seen the bottom in oil prices.

Consumer Services

 

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

Industrials

 

Recent strength in the sector could be an opportunity to boost core holdings.

 

Other Equities

US

 

We remain concerned by extended valuations and slowing earnings momentum as QE matures and the headwind of past 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

 

The preference is property companies to open-ended funds, but caution on liquidity.

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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J Sainsbury

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