Risk rotation
While reluctant to make any long-term predictions, Hambi has seen evidence of the beginnings of a ‘great rotation’ out of fixed income into risk assets. The problem for him, and anybody employed in an asset allocation role, is where to put risk-adverse clients’ capital when a huge chunk of the fixed-income universe is disregarded.
Resolute in not tactically allocating to cash and equivalents, MyFolio has increased exposure to inflation-linked gilts, absolute return bond funds and corporate bonds in particular, through the likes of TwentyFour Asset Management and Royal London Asset Management.
“Half of all our bond exposure is in short-duration vehicles, be it corporate bonds or index-linked bonds,” says Hambi. “We seeded six short-duration bond funds, across both corporate bonds and index-linked bonds. Two were tracker funds, four active.”
In 2015, the team moved from a UK to a global benchmark for fixed income, incorporating the likes of treasury inflation-protected securities and massively reducing duration for clients.
Hambi outlines the move: “Strategically, we used to allocate to the UK index-linked market and we had double-digit returns per annum from that for three years. However, as we had more quantitative easing, duration on the UK index moved to around 26 years.
“We were uncomfortable with that and so by going global we immediately took 15 years off. The average duration on a global index is 11 years, with more liquidity.”
