Fresh from reaching a milestone £10bn in assets under management, Standard Life Investment’s (SLI) MyFolio range might be wrongly perceived as something of a ‘supertanker’ in the world of multi-asset, restricted in making high-conviction moves in and out of major asset classes.
That, however, is clearly not the case. The multi-asset team proved the courage of its convictions last year with a move to sell out of government bonds, both tactically and strategically, amid diminishing yield and growth prospects.
MyFolio is graded on five risk levels, with its Market range investing in low-cost passives; the Managed range consisting of in-house Standard Life funds; and the open-architecture Multi-Manager option.
Following June’s EU referendum, the team held 2% in gilts across the Managed range, risk-based I-IV, as a tactical overlay on the expectation of a BoE base rate cut. The central bank eventually acted in August, at which point 10-year gilt yields fell to just 0.5%.
By the end of October, the team had completely sold out of government bonds, excluding absolute return bond funds and inflation-linked holdings.
“Last year was full of surprises,” says SLI’s head of fund-of-funds Bambos Hambi. “At one stage in 2016, 40% of the world’s bond markets were in negative territory. You were actually paying governments to look after your money.
“In the UK, 10-year bond yields got down to 0.5%. When we launched MyFolio six years ago, they were trading between 3-4%.
“What we’ve done is gradually take all of our government bonds out of strategic long-term allocation, meaning we have none for the first time. We reduced it from 2012, and took more out last year. Only our Risk 1 fund had a strategic allocation to government bonds. In October, we sold out completely.”
He adds: “We believe this is a multi-year story. Bond yields are abnormally low, even at today’s 1.4% for UK 10-year bond yields. However, we are prepared to tactically allocate over a 12-month view, as we did in June when it played out in three months.”
