The Liverpool-based asset manager has also predicted that the bull market ending will give way to an economic downturn in 2020.
As such, the manager has cut equity allocations across its fund range and moved the proceeds into a combination of specialist assets – property, private equity, specialist financial and infrastructure – and short duration high-yield bonds, which are “attractive for the inflation protection and yields they offer”.
Equity allocations now stand at 38% for the Seneca Diversified Income Fund (39% previously), 56% for Seneca Diversified Growth (58% previously) and 58% for the Seneca Global Income & Growth Trust (59% previously).
The firm has created a framework to reduce its risk exposure gradually over time to avoid drastic asset allocation changes once the market does turn.
Peter Elston, chief investment officer at Seneca IM, said in order to be protected when the markets turn, it is “vital” to taper risk ahead of that change.
He added: “This month we further reduced our equity holdings across all of our funds. With a global economic downturn expected in 2020, a bear market will set in ahead of this.
“Our time frame is a very broad estimate and it’s likely that the market changes won’t occur when we expect them to. This is why we are taking action early: we feel in this situation it’s the ‘what’ that matters, not the ‘when’.
“We’re now in a period of monetary tightening across the developed world, which could mean interest rate increases, tapering of asset purchases or balance sheet shrinkage. The US is ahead of other markets in this cycle, however the UK, eurozone and Japan are not too far behind. Given where markets are in the cycle, equity returns should remain positive but are falling.”