AJ Bell ditches bonds in multi-asset income strategy

AJ Bell has made the “rare” decision to go bonds-free in the latest addition to its managed portfolio service (MPS) range.

AJ Bell dtches bonds in multi-asset income strategy

While Income 1, which is focused on capital protection, holds 40% in bonds, Income 2, which was launched alongside Income 1 this week and aims to deliver inflation protection, holds no fixed income.

In contrast, Investment Association retail flow figures released on Thursday showed fixed income was again the most popular asset class in January attracting £1.6bn. Doran responded: “I think the current allocation to bonds by investors at large represents the greatest misallocation of capital in the history of mankind.”

Instead Income 2 holds 70% in equities, 25% in property and 5% in infrastructure. Income 1 holds 40% in equities and 10% each in property and infrastructure. There is an active and passive version of each strategy, adding four new products to the MPS range, which now totals 16 portfolios.

“We’ve made that a bit of a USP,” AJ Bell CIO Kevin Doran told Portfolio Adviser. “It’s quite rare that you’d see an income-generating multi-asset portfolio with no bonds in it whatsoever.”

Doran added: “That’s particularly important in the current environment because we just feel bonds, particularly government bonds, are grossly overvalued. Given where we are in the interest rate cycle we think it’s astute to be at least cautious in your bond exposure.”

Doran said Income 1 would attract more cautious investors than Income 2.

The Adventurous and Global Growth portfolios in the MPS range also do not hold bonds, but Doran said Income 2 is unique in being a bond-free income fund.

Active inflows

The MPS range is attracting approximately £3m a week with £1m of that going into the newly launched active strategies, Doran said.

The active portfolios, which launched less than a month ago, include passive strategies where the team decides fund managers will struggle to outperform the benchmark.

“We don’t want to be evangelical on the debate of active versus passive,” Doran said. The MPS active strategies hold government bond through passives plus some of their exposure to US equities.

“Given the small returns in government bonds there’s not a lot to be added through an active manager,” Doran said.

Speaking on future of the quickly-expanding MPS range, Doran said all products will remain outcome-orientated. “What we don’t intend to do is launch single-strategy products. All our products at this time are multi-asset,” he said.


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