The chart below highlights the benefits of diversification, comparing Governed Portfolio 5 with a typical 60/40 balanced fund - this broader mix should provide more resilience during bouts of volatility.
Our strategic equity mix
Many funds, including simple balanced portfolios, invest in equities on a market capitalisation basis. We allow for additional factors like relative valuations of different markets.
Market capitalisation equity indices are heavily biased towards the US market: a market heavy in ‘growth’ stocks – in sectors like technology where value’s based on future potential – and generally considered one of the most expensive equity markets globally. Our strategic equity mix recognises this and reduces exposure to this region, giving greater weight to more attractively valued UK equities. UK markets are more weighted towards ‘value’ stocks – i.e. stocks from sectors such as utility and financial companies. Their value tends to be more predicted on shorter term profits so is more resilient to changes in inflation and interest rates.
This gives the Governed Range more of a value tilt than standard global indices, reducing reliance on a few expensive and interest rate sensitive growth sectors to generate returns (chart below) and further aids portfolio resilience.
The 40% in a 60/40 fund is heavily weighted to UK and invested in UK government bonds (gilts). By contrast, our portfolios boast other diversifying assets including property, commodities and high-yield. Within the UK bonds space, we spread the investment between gilts, index-linked bonds, and corporate bonds.
Diversification in this environment
With the difficult market environment ahead, the diversification’s importance can’t be understated. While less diversified funds, with high concentration to certain assets and sectors have benefitted in a disinflationary environment, this year’s shown the value of a truly diversified approach. The Governed Range offers clients the benefits of broad diversification to enable a smoother journey towards, and through, retirement.
Find out more about The Governed Range
