Portfolio insights: Video interview with Caroline Shaw

Fidelity International manager on portfolio positioning given the prospect of ‘higher for longer’ rates

Risks to growth and the prospect of a recession are combining to inform a more cautious outlook for investors, argues Fidelity International multi-asset portfolio manager Caroline Shaw in the above video interview for Portfolio Adviser.

The outlook is looking less positive, she tells Portfolio Adviser editorial director Julian Marr, adding: “Given the high and rising inflation we are seeing in the UK and the US, we think the Bank of England and the Federal Reserve will carry on raising rates, which are going to stay higher for longer.

“So that puts a bit of pressure on the economy, with the Fed trying to pilot things to a soft landing and the barriers to that being quite high because of the strong labour market. Without any softening in the labour market, then, we see an exit path for the Fed as being really tricky – and, overall, risks to growth and a recession on the horizon leads us to a cautious outlook.”

China and cash

Shaw goes on to offer her thoughts on China’s post-pandemic recovery, the attractions of an allocation to cash in an environment where it can yield 5% and portfolio positioning overall. Given their cautious outlook, it is perhaps unsurprising to find the team with an underweight position in equities – favouring quality over cyclicals – while in fixed income, they prefer government bonds over credit.

“Where we do have corporate credit exposure, it is in investment grade rather than on the high yield side,” says Shaw. “High yield is an interesting space as, for years and years, we have had low default rates. Now, however, we are watching things very carefully, given the refinancing that has been happening.

“We have certainly seen companies in the UK refinance at coupons significantly in excess of where they were even two years ago – so we think that pain from those bonds that have been issued recently has probably not been felt yet because those coupons have not had to be paid. The more vulnerable companies are going to feel the pain ahead.”

You can view the whole video by clicking on the picture above, while the timecodes for each question are set out below:

00:20 How do you view the current macro backdrop and what is your outlook for the rest of the year?

01:30 Given this backdrop what is your general appetite for risk at the moment? How are you positioned?

03:01 Recent data out of China has somewhat deflated the positive post-Covid re-opening narrative. What is your take now on China’s recovery?

05:08 Given you can get 5% on cash today, do you have an allocation in the portfolio and, if so, how do you manage it?

06:12 Many of your funds have a sustainability tilt. How do you approach investing sustainably from a top-down perspective?

About the author