The latest Smith & Williamson managed portfolio service (MPS) rebalance has seen money pulled from global index-linked bonds and reinvested in short-dated gilts and credit.
The team was previously significantly overweight global index-linked bonds and cited “in-house guidance” as driving the move to more equal weight positions in its Defensive, Defensive Income and Balanced Income models.
Sales proceeds have been reinvested into a combination of short-dated gilts, namely iShares 0-5 Gilts, and short-dated credit via the Axa US Short Duration High Yield and Artemis Corporate Bond funds.
Additionally, the team increased/introduced some sovereign bonds in its Balanced Growth and Growth models “as portfolio insurance”. This was done through the SSGA SPDR Barclays Bloomberg Global Aggregate ETF at the expense of corporate credit.
Changes were also made to the team’s US equities holdings, with Artemis US Extended Alpha halved across the range and sold entirely in its Dynamic Growth model. Proceeds were used to increase existing positions in JPMorgan US Equity Income and Vanguard US Equity Index.
This was done “to slant the models towards more value style sectors whilst bringing down overall portfolio costs”, the team said.
Proceeds from the sale of Artemis US Extended Alpha were also used to increase the weighting to Blackrock Gold & General in the Balanced Growth, Growth and Dynamic Growth models in light of it being “a strong performer year to date”.
See also: Smith & Williamson ditches Henry Dixon fund for Monks trust as it tempers value slant
James Burns (pictured), co-manager of Smith & Williamson MPS, said: “The house view is that there are significant levels of inflation expectations being priced into index-linked markets which sets a high bar for the asset class to continue performing so well.
“There is also the challenge that as base interest rate expectations rise the price of gilts go down and this impacts index-linked bonds in the short-term.”
