This, he notes, makes it relatively more attractive to start closing its underweight positioning from a fundamental point of view.
“We also see an increase in the likelihood of a decline in the value of sterling in the short term,” he adds. “The currency is no longer as clearly undervalued as previously, yet the political outlook regarding the Brexit negotiations is more negative than it has been for some time.
“Poor leadership and seemingly intractable problems such as the Irish border are combining with an ever shorter time period to leave us viewing the next few months as potentially very challenging for the pound.
“Holding the FTSE 100 should act as a hedge against a sharp fall in sterling, while still giving us positive exposure to the positive global growth trend that is pushing equity markets higher.”
Long-term thinking
Ryan Hughes, head of fund selection at AJ Bell Investments, says its cautious portfolio currently has 14% in cash, which is unchanged since the spring.
Elsewhere some 58% is in fixed income, marginally down from where it was at the start of the summer, and 6% is in property.
In terms of equities, he says its current 22% weighting is higher than it was earlier in the year and has been invested globally.
“Our overall allocation has not changed since the summer, as our long-term approach means that the impact of short-term market moves on our asset allocation is limited,” Hughes says.
“When the last changes were made, at a sub-asset class level, risk was marginally increased in our fixed interest exposure through a reduction in government bond exposure in favour of a small increase in high-yield bonds.
“From an equity perspective, a small increase was made across the world, with just over 9% exposure to the US and nearly 7% in the UK. The remaining 6% in equities is spread across, Asia, Japan and the emerging markets.”
