Investment Clock insights

Current multi asset positioning


Nersen Pillay

4 September 2018

While US equities have risen this summer, emerging markets have had a steep sell-off as the US dollar strengthened (see comment on EM here: http://www.investmentclock.co.uk/Our-thinking/The-Emerging-markets-bear-market-Turkey-is-a-symptom-not-a-cause/).

US v World

Source: Thomson Reuters Datastream

Emerging Markets v World

Source: Thomson Reuters Datastream

Currency has had a very significant impact on returns: in sterling or USD terms, only US and Japanese equities have positive returns year to date;  Europe, the UK and Asia are all down. Significant divergence in performance between regions has been caused by factors including US growth outshining other developed markets,  US interest rates rising, a stronger USD making borrowing in emerging markets more expensive, concerns over Italy and potential eurozone issues arising again, ongoing Brexit uncertainty, and trade war potential negatively impacting sentiment on Europe and Asia. 

Given various concerns in markets, before the summer, we reduced risk in our portfolios, taking profits after buying equities in the Q2 equity market dip. While reducing equity exposure, within our equity holdings, we increased our overweight in US equities and after a long period of being overweight emerging markets, we went underweight. 

We remain slightly overweight equities as global growth is still positive and not significantly challenged by only relatively small interest rate increases expected in developed markets, while inflation remains benign.  We retain an overweight position in short duration high yield bonds and stay neutral in property and commodities. We continue to be underweight fixed income given UK and US interest rates are rising gradually. We remain overweight the USA, because of its strong growth, and Japan but underweight the UK, Europe and Emerging Markets as they face more challenges.  

While volatility in developed markets has been low since Q2, various factors could lead to higher volatility in the last third of the year. We believe a well-diversified   approach remains the best way to navigate markets and are ready to buy any dips in equity markets given a constructive growth, inflation and interest rate outlook.  

Weightings may vary according to tactical asset allocation and the Fund may invest outside of indicated asset classes as the manager sees fit. 

Source: RLAM. Tactical positions as of August 2018

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.