Morningstar also recently sold out of its property position, which it says was no longer rewarding it sufficiently for the illiquidity of the asset class.
On the equity side, the firm is slightly underweight in total, with a 57% allocation, where its benchmark is 60%.
According to Johnson, The UK continues to flag up its screens as one of the most attractive areas, while emerging markets are currently posing a conundrum. “We have recently lowered our expected return models for emerging markets, based on lower expected growth rates in the larger economies, but the region still looks attractive versus developed markets,” he says.
However, he adds: “You are definitely having to work harder to find ideas, you are having to get more granular.”
Andrew Wilson, head of investment at Towry, wholeheartedly agrees, pointing out that investors have had two years of very range-bound markets. “You have really had to sweat your assets more. We have been trying to take profits where we can when assets drift above benchmark. In a range-bound market every basis point counts,” he says.
According to Wilson, Towry has for some time been close to, or at, its lowest ever exposure to fixed income. But, like Johnson, he points to the critical role it plays within asset allocation as a reason why it is unlikely to get lower than the 11-22% Towry currently holds.
Wilson says the firm is less biased towards credit than many of its peers for this reason. Government bonds are the least correlated to equities and are, as such, likely to provide the most diversification.
