The Evelyn Partners active managed portfolio service (MPS) team has cut equity and corporate bond exposure in favour cash and government bonds.
The change has been made in all but two of the portfolios. It has been prompted by the view that there is increased uncertainty for risk assets, and it was therefore prudent to trim a long-held overweight position.
The reduction in equities does not reflect a ‘particularly negative outlook’ however, the firm said.
Within government bonds, the team has added to its holdings in AXA Sterling Index Linked Bond, Sanlam International Inflation Linked Bond and Vanguard US Government Bond Index.
To take advantage of the returns available from cash, the team significantly increased its holding in BlackRock ICS Sterling Liquidity.
It has been 15 years since cash was last this attractive, the firm noted.
James Burns (pictured), lead manager of the Evelyn Partners Active MPS, commented: “Corporate bonds have become less attractive as credit spreads have tightened to levels that make their protection characteristics in a portfolio less obvious. We therefore reduced exposure to longer dated corporate bonds but retain significant exposure to shorter-dated ones that should fare relatively well in the event of any downturn.
“We added to government bonds as expectations have risen that we are at, or close, to the peak in the interest rate cycle in developed markets. Government bonds remain compelling, for as well as offering attractive real yields, they should also provide a level of portfolio insurance were a growth shock to occur.”
Burns added that inflation-linked bonds also ‘look interesting’ as he believes markets may be underestimating medium-term inflation.