Fixed income fades
The increase in exposure towards equities has come at the expense of fixed income where rock-bottom yields in assets such as government bonds are a far-cry from the safe, steady offering they once signalled in the past.
While the asset class still accounts for just over a quarter of the exposure in the average mid-risk portfolio in Q3, at 25.1%, fixed income exposure is down from Q2 when it hit 26.6%.
For Coram Asset Management, exposure to the high-yield space in its mid-range Global Balance Fund, managed by James Sullivan and Scott Campbell, has provided the returns needed from fixed income.
In its October update in Q3, Sullivan said: “Our high-yield theme is all short-duration and to mitigate, as best we can, undue risks can be crudely split into two geographic regions – Europe and the US.
“Since we bought into European high yield, the change in valuation has been quite remarkable, while on a risk versus reward basis, the US still remains worthy of inclusion within our mandates.
“Taking on board the monetary policies, and direction thereof, of the ECB and Federal Reserve, it felt prudent to cash in our European theme and rotate a percentage of the proceeds back into the US theme.”
Finding the right level
Despite equity allocations rising, and fixed income falling, portfolio managers have not been gung-ho about their shifts in exposure, and have increased cash levels, too.
Cash levels were up from 7.01% in Q2 to 7.11% in Q3, a marginal rise but one that signals both a need to preserve capital but also to be open to any new market opportunities. On top of rising cash levels, managers also increased their exposure to alternative asset classes, according to TMPI data.
Exposure to alternatives rose from the Q2 level of 11.4% to 11.7% in Q3, with the likes of infrastructure and property promised a boost from government investment.
For Walker Crips, the only significant bias in its Alpha:r2 range of portfolios is towards alternatives, which co-managers Andrew Morgan and Gary Waite view as the only major area where delivering a return is possible. They are currently 3% overweight the 15% benchmark.
As such, absolute return features in the portfolios, accessed through the Aviva Investors Multi-Strategy (Aims) Target Income Fund. Despite a fairly lacklustre performance during the bull run, Morgan and Waite are sticking with the fund because they like the investment process and believe it has potential to protect portfolios if markets drop.
“It is very similar to what we preach at Crips,” says Waite. “The risk of the portfolio is put at the same level as the investment idea generation and, ironically, they use the Blackrock risk system we have trained on.”
The Alpha:r2 range is also allocated to the Jupiter Absolute Return Fund, the Natixis H2O Multi Returns Fund and the First State Global Listed Infrastructure Fund.
Medium risk versus benchmark
