22 March 2022
Quilter’s WealthSelect managed portfolio service has used its quarterly rebalance to rotate into defensive assets and help protect the portfolios in the event of further corrections.
Market volatility has increased significantly recently as a result of Russia’s invasion of Ukraine and the continuing increase in inflation sparking fears of sluggish global growth. As a result, at the beginning of March portfolio manager Stuart Clark selectively added to fixed income and alternatives exposure in the low and medium risk levels to bolster their defensive qualities.
All risk levels within the Managed range of portfolios have seen UK equity exposure reduced following strong performance, while profits have also been taken from holdings in precious metals and natural resources.
Emerging market exposure was also trimmed having performed well due to positioning in emerging Asia rather than emerging Europe. Correspondingly, each risk level has seen an increase in European equity holdings, helping to reduce the underweight the portfolios has to the region. This follows poor recent performance due to the knock-on effect of the Ukrainian crisis.
To help add some ballast to the portfolios, Clark offset the reductions in equities with increases in alternative assets and traditional fixed income. The increase in alternatives will help the portfolios not be overexposed to the effects of inflation and increasing bond yields.
Meanwhile, the portfolios added to traditional fixed income assets due to recent underperformance. The portfolios remain underweight in this asset class but has seen the introduction of the Aviva Investors Global Sovereign Bond fund at the expense of some gilt index exposure. This change reduces the rate sensitivity of the portfolios and with being active should be able to navigate any rotations of rate expectations as the growth and inflation debate rages through the year.
While the latest rebalance was contained to just the original 16 portfolios, the Responsible portfolios will have a similar asset allocation, although the manager mix and underlying regional exposures will differ. The Sustainable portfolios specifically will target the same headline asset allocation from an equity perspective but will be global thematic in nature. Bond exposure, along with cash, will be higher in these portfolios due to a lack of sustainable alternative funds and to help balance the risk of the equity holdings.
Stuart Clark, WealthSelect and Quilter Investors portfolio manager, said: “Geopolitical and financial market tensions have ratcheted up in recent months and this has had a significant impact on assets year to date. Some may think now is time to buy the dip, but serious headwinds remain at the forefront that it seems prudent to add some more defensive characteristics into WealthSelect.
“The Russian invasion of Ukraine has had dire humanitarian consequences already and the impact across the world is already being felt. Add in to the mix that inflation shows no sign of slowing down and global growth looks like it will stagnate, and you have a recipe for unhappy financial markets.
“The risk of a policy misstep by central banks has increased and there is real potential that we see further corrections. As such, owning defensive assets that also help reduce exposure to bond yield moves will be crucial, while other opportunities are still present in the market.
“Being active will be key in this market environment and allow investors to navigate any disruptions by remaining well diversified and alert to opportunities when they arise.”
