4 October 2023
Quilter’s WealthSelect Managed Portfolio Service has used its latest rebalance to once again add to its fixed income allocation as it continues to be underweight risk assets across all ranges.
Portfolio manager Stuart Clark remains cautious given the relative strength of risk assets year to date, against a backdrop of rising rates. Clark sees corporate earnings and standards of living beginning to deteriorate under the pressure and this represents a real risk of recession in the near future.
The WealthSelect Managed Portfolios are now overweight fixed income compared to their strategic asset allocation. This change has been reflected in an increased allocation to sovereign bond funds, with an even split between global bonds and gilts. Without trying to time the peak of the current interest rate cycle, Clark does believe developed market government bonds provide the portfolios with an attractive opportunity at current yields and capital protection in a recessionary environment.
The increase in fixed income allocation comes at the expense of alternatives and cash. On the equity side of the portfolio, while no changes were made to the overall or regional position, Clark has tilted the UK equity allocation towards larger cap overseas revenue earning companies, as a result of potential sterling weakness, and away from companies more exposed to the challenging domestic economic environment.
Similar overall allocation changes have been made to the Responsible and Sustainable ranges. However, within Responsible specifically, the position in the T.Rowe Responsible Asia ex Japan Fund has been trimmed in favour of the Quilter Investors Asia ex Japan Large Cap Fund. The portfolios have also adjusted the manager mix within the global specialist allocation resulting in additions to the Sparinvest Ethical Global Value Fund, the Janus Henderson Horizon Responsible Resources Fund and the Quilter Investors Timber Equity Fund, while reducing allocations to the Allianz Global Water and Candriam Equities L Oncology Impact funds.
Meanwhile, in the Sustainable range, Clark has taken the decision to de-risk portfolios nine and ten (the highest risk portfolios) by increasing and introducing a cash allocation, respectively. This reflects the cautious stance taken by the portfolios and utilises all the tools available to increase the defensiveness of these higher risk portfolios in a challenging market environment.
Within the equity mix in Sustainable, the portfolios have divested from the UBAM Positive Impact Emerging Market Equity Fund, following an investigation into a potential breach of Quilter Investors’ exclusion framework for these portfolios. The proceeds have been used to increase the defensiveness of the portfolios by adding to large cap global multi thematic holdings, while also taking the opportunity to increase exposure to energy and social transition holdings.
Stuart Clark, WealthSelect portfolio manager, said: “We continue to look across the market and see activity that is not truly reflective of the environment we are in. The interest rate hikes we have seen to date are beginning to bite and we expect global growth to slow significantly, with recessionary periods in some developed markets.
“As a result, we have taken this opportunity to continue to add to the defensiveness of the portfolios, being cognisant that there are still some sector or regional specific opportunities. With yields where they are, however, fixed income is becoming more and more attractive. While it is difficult to time the exact peak in the interest rate cycle, we feel comfortable enough that we are close to the end that the asset class deserves a good weighting in the portfolios.
“We have also been making changes around the edges to our Responsible and Sustainable ranges. It is important that these continue to deliver the dual mandate that clients come to expect, and as such it means acting where we see funds falling short. We act as stewards for our investors and their money and it is important we are active when we see harm where we shouldn’t.”
