27 October 2022
Quilter’s WealthSelect Managed Portfolio Service has added to traditional fixed income following the extreme sell off in government bonds this year.
Portfolio manager Stuart Clark said that while he isn’t expecting an imminent pivot in policy by the Federal Reserve, the current economic environment justifies an ad-hoc rebalance of the portfolios to take advantage of the diversification benefits of the higher yields on offer.
The WealthSelect portfolios has been underweight to traditional fixed income of late, however will now add to this exposure across risk levels 3-7 in the Managed and Responsible ranges.
Clark has added to the Aviva Global Sovereign Bond fund in the Managed Active, Managed Blend and Responsible Active portfolios. This fund actively manages the duration, credit, currency and regional positioning of the holdings alongside integrating Environmental, Social and Governance factors within the bond selection process. Meanwhile the Responsible Blend portfolios has seen an increase to the HSBC Global Government Bond Index fund, giving passive exposure to developed market government bonds.
Since the last scheduled rebalance, the WealthSelect portfolios have also benefited from strong performance from its alternative holdings, including the Trium ESG Emissions Impact fund, the Quilter Investors Absolute Return Bond fund and the Quilter Investors Global Equity Absolute Return fund. As a result, profits were redistributed across the equity and credit funds following weaker performance in these asset classes.
For the Sustainable Active portfolios, the decision was taken not to undertake an ad-hoc rebalance due to the portfolios already having a higher allocation to fixed income, and specifically global government bonds.
Stuart Clark, portfolio manager of WealthSelect, commented: “We set a high bar to carry out a rebalance outside of our quarterly periods. Given the challenging economic backdrop and how far government bond yields have come, it felt that now was the right time to take advantage of our flexibility and add to our exposure in the fixed income market.
“We have historically been underweight fixed income as a result of years of loose monetary policy and rock bottom interest rates. We have since seen a fairly dramatic shift in policy from central banks as inflation has run rampant and proved stickier than most first believed. With inflation still high, although now appearing to moderate, much of the world facing a cost-of-living crisis, it is natural that we will see economic growth challenged.
“As a result, while we don’t expect a sharp reversal in interest rates, we do think central banks will need to be innovative and adaptable with some form of support or easing. The diversification benefits of fixed income should begin to shine again after what has been an incredibly difficult year for the asset class. It is also an asset class we will continue to watch with intrigue as we come up to our next scheduled rebalance in December.”
