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Asset Allocator

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Titan's Leiper warns on optimism

Asset Allocator had the proverbial pie and pint catch-up with Titan's chief investment officer John Leiper recently.

Leiper's firm has been busily buying DFMs and advice businesses this year, and makes a virtue of being vertically integrated. 

Titan tends to use active asset allocation but passive investment instruments, mostly ETFs, in many of its products.

In the middle of 2021, with higher inflation on the horizon, Leiper decided to chase higher yields by switching into dividend-paying equities.

But with inflation now entrenched, Leiper has begun to reduce his exposure to dividend-payers and increase his exposure to traditional growth equities, including in areas such as large-cap technology.

He says this is partly based on valuation, and partly a hedge against the idea that the US Federal Reserve, whose chair Jerome Powell he calls "pragmatic", might decide US rates don't need to rise by quite as much as the market currently expects.

In such a climate, he feels growth stocks would make a comeback.

Leiper is also intrigued by the investment outlook for Reits. He told Asset Allocator these funds typically perform well when dividend-paying equities do, but this correlation has not happened this year. 

He feels this could represent an investment opportunity but, at the moment, he is "cautious" in terms of his exposure to commercial property Reits given the level of uncertainty. 

Leiper feels that if US inflation remains elevated then income assets, such as dividend-paying stocks, could continue to do well which would probably make Reits the cheapest such asset around. 

More generally, Leiper's longer-term asset allocation move is to "own fewer bonds" over the longer-term. 

In the model portfolio service this means an increased allocation to alternatives including, in recent times, to commodities. 

He is generally cautious on the outlook for markets right now, taking the view that recent optimism is a function of strong US corporate earnings, which represent a time period before the current economic malaise took hold.

Ultimately, Leiper says, corporate earnings later this year may tell a different tale.

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