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Splash the cash

The nights are drawing in, the leaves are taking on a copper hue and the pumpkin spice lattes are being brought forth.

And so we turn to the latest update from Waverton.

When last we looked at how Waverton sees the world, they confirmed they were holding a substantial allocation to cash. 

Their latest update reveals they have begun to splash that cash, specifically by "materially" increasing their allocation to bonds, an asset class in which they had previously been underweight.

Waverton’s rationale for this view is that recession risk, even in the US, has risen stoutly and so have the yields on bonds.

As a recession would be expected to lead to investors rushing to the safe haven of bonds, and with yields sufficiently large to compensate bond owners until the downturn takes hold, Waverton's view may be one that other allocators move towards in the coming weeks.

The bond purchases have been funded both from cash holdings and by reducing the more cyclical elements of Waverton’s alternatives allocation. 

What is perhaps less intuitive, is that Waverton are not significantly reducing equity exposures below the neutral levels at which they presently reside. 

Bill Dinning, Waverton's chief investment officer, says this is because they believe a combination of nominal GDP growth remaining positive, and considerable bad news already being priced into equity valuations, means they don’t see the need to drastically alter this part of the portfolio. 

Following the re-balance, Waverton's balanced portfolio now has 16 per cent in bonds, 56 per cent in equities, 10 per cent in absolute return strategies, 15 per cent in real assets and 2 per cent in cash.

That equity allocation is precisely in line with the median allocation in the balanced portfolios covered by the Asset Allocator database, while the fixed income exposure remains significantly underweight relative to peers.

Waverton's 16 per cent compares with the 24 per cent average for the allocators on our database.

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