Quilter’s WealthSelect managed portfolio service (MPS) has paused on adding to fixed income due to the managers’ concerns regarding inflationary pressures and the impact on interest rate cuts.
Portfolio managers Stuart Clark, Helen Bradshaw and Bethan Dixon believe the likelihood of either a hard, soft or no landing in the US is balanced.
They noted that while a no landing scenario ‘seems to be gaining traction’, it carries a larger risk to market pricing as sticky inflation may lead to delays in rate cuts, which are currently priced in.
Due to this risk, they have refrained from adding to fixed income in their latest rebalance.
“Given the dovish shift in narrative from the Federal Reserve last December and the resilience of the economy and consumers, we now believe the risk of a hard recession is reduced and instead is more evenly spread between a hard, soft or no landing,” said Quilter’s Clark.
“We have recognised this in the rebalance while reflecting what is a key risk in our minds – the potential for a stubbornly sticky inflation that could prompt central banks to reconsider the widely anticipated downward path in interest rates.
“Elevated geopolitical risk in the Middle East, specifically the military action in the Red Sea, has seen shipping rates driven higher and supply chains building higher inventory levels – all while there continues to be robust economic activity, with recent economic data in the US and Europe surprising to the upside.”
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Elsewhere, The WealthSelect team took profits in areas of strength, namely growth managers in the US and Europe.
They reduced their underweight to European equity markets as a whole, through increased allocations to the Quilter Investors Europe (ex UK) Equity and Quilter Investors Europe (ex UK) Equity Income funds.
The team also maintained the allocation to alternatives, but added to their position in the Trium ESG Emissions Impact fund having trimmed elsewhere.
Similar overall changes were made to WealthSelect’s Responsible and Sustainable ranges.
Within the Responsible range, Schroder European Sustainable and EdenTree Responsible and Sustainable European Equity saw weighting increases.
In the firm’s sustainable range, WealthSelect continued to build its position in T Rowe Price Global Impact Credit to “further diversify” the manager mix by trimming Wellington Global Impact Bond and BlueBay Impact-Aligned Bond.
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