During the second quarter, UK equities were down 3.1% and gilts by 3.9%. Commodities fared far worse, especially precious metals including gold, which declined by 25.3%.
Defensive qualities
But as markets fell, the portfolios that make up the Trustee Managed Portfolio Indices across the risk spectrum were notably positive thanks in part to the trend of a greater allocation to alternative assets.
Including hedge strategies, even the Low Risk Index (with performance up 2.6% in Q2) upped its allocation to alternatives from 14.4% at the end of 2012 to nearly 20% at the end of June.
For example, while keeping the vast majority of his most defensive portfolios in fixed income (67%), David Cavaye, chief investment officer at C Hoare & Co, explained how he included property and other alternative asset classes for the first time.
“Initially our alternative investments were market neutral funds. We are now looking at a European long/short Ucits hedge funds to provide some additional equity exposure with relatively low volatility.
“We also think property will do well over time. It is performing well in the UK and the US although it currently looks a bit more volatile in Asia but has good dividend prospects and is a good recovery story, especially in Europe” he explained.
He has also moved some of his fixed income assets to increase his exposure to strategic bond funds, including the F&C Macro Global Fund which can go negative duration.
Lower duration
“We wanted to continue to reduce duration overall by selling down longer-dated government stock, but at the same time we have added to strategic bond funds with the ability to move assets around to take advantage of opportunities,” he says.
Edward Allen, a partner at Thurleigh Investment Managers, is another wealth manager using alternative assets for clients with a low-risk threshold although he describes them as a “stable” part of these kinds of portfolio, citing Winton CTA as a trend-following theme and multi-asset funds like Troy Trojan and PIMCO Global multi-asset.
The Trustee MPI low risk index has seen close to an 80% rise in allocation to investments in commodities, property and private equity, up from 6.3% at the end of last year to 11.3% at the end of June.
Looking at the wider retail investor space, the latest fund stats from the IMA show property as the fifth best-selling sector with net retail sales of £140m, its highest level for more than three years.
This is a trend that many wealth managers are following as they aim to put together a genuinely diversified portfolio and to look outside equities and bonds.
