Parmenion’s tactical asset allocation committee has added to index-linked government bonds across its models.
The discretionary investment manager’s committee unanimously came to the view that the business cycle has moved from the late slowdown phase into the early stages of a recession.
“This is predicated on weakening forward looking economic indicators and the tightening financial conditions that are bearing down on consumers. Portfolios have been altered so to ensure they remain appropriately aligned to the current and near-term environment. This has been achieved by adding to index-linked government bonds and sterling corporate bonds across […] low, medium and higher risk models,” the committee said.
Jasper Thornton–Boelman (pictured), investment director at Parmenion, said: “Whilst still underweight relative to our long-term strategic position, we have added to global index-linked government bonds. The asset class has come under pressure of late but in turn we have seen a sharp increase in real yields. Now in positive territory, something not seen for a long time, it felt an opportune time to begin to add exposure.”
A similar shift was made to corporate bonds, but here the increase in exposure brings the asset class back up to its neutral position.
Thornton–Boelman continued: “The increase in both yields and credit spreads this year have meant corporate bonds, particularly investment grade, are very attractively valued. Whilst we may experience further upward pressure on spreads as we move further into a recession, a 7% income stream feels like a worthwhile trade off. If that did happen, we would likely view it as a further buying opportunity.”
Equity exposure remains underweight across tactical models, with UK equity income funding part of the committee’s recent moves.
Thornton-Boelman added: “UK equity income has offered strong performance relative to a number of other equity markets, with a natural tilt towards value stocks and the energy sector helping. We have opted to trim exposure here but keep an overweight to emerging markets in place. Potential catalysts such as the dollar peaking and changes to China’s zero Covid policy provide us with reason to be positive over a medium-term horizon.”
