Quilter’s WealthSelect managed portfolio service has increased its fixed income allocation in the latest rebalance.
The firm continues to be underweight risk assets across all ranges due to concerns over the economy.
Portfolio manager Stuart Clark ‘remains cautious’ given the relative strength of risk assets this year against a backdrop of rising rates, Quilter said. He sees corporate earnings and standards of living beginning to deteriorate and this represents a real risk of recession in the near future, in his view.
The portfolios are now overweight fixed income compared to their strategic asset allocation. They have an increased allocation to sovereign bond funds, with an even split between global bonds and gilts. The increase in fixed income allocation comes at the expense of alternatives and cash.
See also: Unexpected fall in inflation opens door to Bank of England rate hold
On the equity side, while no changes were made to the overall or regional position, Clark has tilted the UK equity allocation towards larger-cap overseas revenue earning companies and away from those more exposed to the challenging domestic economic environment.
Within the Sustainable portfolios, Clark has divested from the UBAM Positive Impact Emerging Market Equity fund, following an investigation into a potential breach of Quilter’s exclusion framework.
Clark said: “We continue to look across the market and see activity that is not truly reflective of the environment we are in. The interest rate hikes we have seen to date are beginning to bite and we expect global growth to slow significantly, with recessionary periods in some developed markets.
See also: Are US equities overvalued, or are valuations just high?
“As a result, we have taken this opportunity to continue to add to the defensiveness of the portfolios, being cognisant that there are still some sector or regional specific opportunities. With yields where they are, however, fixed income is becoming more and more attractive,” he continued. “While it is difficult to time the exact peak in the interest rate cycle, we feel comfortable enough that we are close to the end that the asset class deserves a good weighting in the portfolios.
“We have also been making changes around the edges to our Responsible and Sustainable ranges. It is important that these continue to deliver the dual mandate that clients come to expect, and as such it means acting where we see funds falling short. We act as stewards for our investors and their money and it is important we are active when we see harm where we shouldn’t.”
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