29 September 2022
Quilter’s WealthSelect managed portfolio service used its quarterly rebalance in September to reduce equity exposure and top-up allocation to fixed income. However, portfolio manager, Stuart Clark, has reduced allocation to gilts in favour of actively managed global sovereign bond exposure.
The move reflects Clark’s view that gilts face greater headwinds due to higher UK inflation; the Bank of England being behind the Fed in terms of interest rate increases; sterling weakness; and potential for further fiscal policy change and additional debt borrowing as the UK government seeks to support households through the cost-of-living crisis.
Clark has maintained the predominantly ‘risk off’ position for the WealthSelect portfolios, with the UK equity allocation remaining significantly underweight. Clark’s view is that UK equities will see further deterioration following last week’s fiscal event, compounding the view that the government moves will lead to even greater BoE tightening and deepening the chances of recession as a result.
While reducing equity overall, US equities were allowed to drift higher at the expense of Asia and emerging market equities which were marginally trimmed. At the same time a new position was initiated in the Quilter Investors Timber fund.
Allocation to alternatives is unchanged, however Clark has sold Allianz Fixed Income Macro in favour of the Trium ESG Emissions Impact fund. This is a market neutral, global equity fund delivering returns through investing in long term winners in the energy transition process.
In the WealthSelect Responsible portfolios Clark has added to Sparinvest Global Ethical Value to take the opportunity to increase the value exposure in the portfolio by trimming growth gains elsewhere in the portfolio.
In the Sustainable portfolios, Clark has increased allocations to larger cap global multi thematic funds and specifically Triodos Global Equity Impact. Clark is seeking to allocate to ‘defensive’ large cap orientated managers to reflect his cautious view on equity markets, at the expense of the growth orientated small/medium cap focused exposures.
Stuart Clark, WealthSelect and Quilter Investors portfolio manager, said:
“We continue our cautious stance. With ongoing inflationary pressures, central banks remain on a hawkish path and the cost-of-living crisis increasingly puts pressure on consumers and corporates, increasing recessionary risk. And while there are headwinds for fixed income from rate rises, yields look more attractive today than previously and should provide support in a recessionary environment.
“Last week’s fiscal event is a huge gamble, and it will have far reaching consequences if it doesn’t come off. And given the potential lag between tax cuts and any trickling down effect, it is unlikely to address the immediacy of the current crisis affecting the population.
“Adding to risk assets at this point seems highly speculative and not much else. If we hope for the best, this could be a game-changing pivot for the UK, but – and it is a big ‘but’ – if we fear for the worst, we may find further comparisons being made with 1970s IMF bailouts.
“The UK is facing a unique set of circumstances and the fact it is cheap relative to other areas of the market means very little while this kind of uncertainty persists.”
