Smith & Williamson Investment Management has initiated a position in the Blackrock Gold & General fund in its managed portfolio service range due to inflation expectations.
The £1.3bn fund, co-managed by Evy Hambro and Thomas Holl, invests in precious metal securities with over 90% of the portfolio focused on gold, 6.5% on silver and 2.8% focused on platinum. Weightings range from 1.5% in the defensive portfolio to 2% in the balanced and growth portfolios.
Smith & Williamson MPS co-manager James Burns says the position reflects the team’s medium-term view on the outlook for inflation. While the coronavirus pandemic saw many drivers of inflation go into reverse, Burns says the outlook has changed in 2021.
“The key driver of this view is the outsized impact of policy, particularly the deployment of fiscal measures on top of the monetary stimulus that has been repeatedly used over the last decade.
“We believe tail-risks of significant inflation may also be tilted to the upside, with the risk that policymakers are potentially building up more significant challenges in the longer-term and that the reaction function of central banks and governments might well be too slow.”
Additionally, although the Blackrock Gold & General fund carries some beta, Burns said the fund should provide diversification in challenging markets.
Smith & Williamson dials down US and China exposure within equities
Within the MPS’s equity allocations, Smith & Williamson has allowed its UK weighting to drift from underweight to overweight while dialling down exposure to the US and China.
Burns said: “This is driven by what we believed to be excess pessimism towards the UK at a time when Brexit would soon be done one way or the other, mass vaccine roll-outs were on the horizon, and the UK simply looked too cheap relative to virtually all other markets. The prospects for the pound also looked more positive.
“On the flip side, with value having underperformed growth ever since the global financial crisis and particularly over the last year, a historically large valuation gap has opened up between the styles. The US market has been the most significant beneficiary of this, but we see this changing.”
Burns added that the dollar’s strength was unlikely to continue because the US Federal Reserve has been more aggressive than other central banks in currency printing. “Our move against the US is a reflection of these drivers, meaning there are more attractive opportunities elsewhere, although we don’t expect the US to fall off a cliff.”
Additionally, the team has decreased its holding in Fidelity China Special Situations after a very strong period of performance in 2020. The £1.2bn investment trust, managed by Dale Nicholls, delivered share price returns of 68.6% in 2020, compared to 25.5% in its MSCI China benchmark.
