Thesis Asset Management has shaved its exposure to UK equities and commercial property across a number of its model portfolios due to fears market uncertainty will persist for some time.
Ryan Paterson, research manager at Thesis, said equities are now at the upper end of their trading range, with valuations generally looking high.
As a result, the company decided it was a good time to trim back its UK equity exposure across six of its seven portfolios, reducing it between 2.3 and 5.3 per cent.
Mr Paterson said the “hangover” from the referendum is yet to be felt, pointing to the expected drop in business investment, and argued the uncertainty in the UK looks set to carry on for a while.
He also pointed to the pitfalls of inflation, which he said will hurt real wage growth and cause a deterioration in household spending, prompting Thesis to reduce exposure to UK consumer activity by selling some retail stocks.
At the same time, the firm decided to slim down weightings to financials, given the lower yield environment and what it said were ongoing uncertainties surrounding the financial services sector.
David Goldman, who manages BlackRock’s £287m UK Income fund, also decided to steer away from financials, sheding a large portion of the fund’s exposure to the financial sector after the Brexit vote on 23 June.
Thesis also revealed it had recently cut its exposure to commercial property across a number of its portfolios in order to lessen the liquidity risk, removing between 3 and 4.2 per cent.
The mismatch between the illiquidity of commercial real estate assets and the liquid investment vehicles which hold them has come under the spotlight over recent months after a number of large property funds were forced to suspend trading.
Meanwhile, the investment team at Thesis boosted its fixed income exposure after the Bank of England’s base rate cut earlier this month, increasing its weightings in bonds across all of its portfolios.
Mr Paterson said: “The post-referendum relief rally has seen a sharp increase in appetite for risky assets, but perversely risk-off assets have not sold off significantly.”
He said this was partly due to the search for yield, but also said it reflects a reduction in the outlook for short-term interest rates following the base rate cut.
Thesis also decided to increase its exposure to infrastructure across its seven mandates,
katherine.denham@ft.com
