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from Asset Allocator

On the road again

Whoever said politics doesn't change anything hasn’t read the latest Wealthselect model portfolio update from Quilter.

The MPS manager Stuart Clark has reduced equities and bought bonds. So far so, "there is a recession coming".

The more interesting bit is that he remains staunchly underweight UK equities and has reduced gilts exposure, replacing the allocation with a global, actively-managed sovereign bond fund.

Clark's continued pessimism towards the UK market has been reinforced by the recent mini-Budget. He says the announcements made by chancellor Kwasi Kwarteng are likely to mean interest rates rise by more than they otherwise would have, which he views as extremely negative for UK equities, and "increase the chance of a recession".

At the same time he believes the Bank of England is behind the curve on rate rises, meaning inflation will be higher than it might be, weakening the investment case for gilts.

Higher interest rates that are caused by both the central bank trying to catch up with the Federal Reserve, and the government’s fiscal largesse meaning the supply of gilts increases, and so the price of the gilts currently in issue would be expected to fall. 

Within the equity book, emerging market and Asian equities were trimmed while the US allocation drifted upwards. 

The Allianz Fixed Income Macro fund was sold during the month, and replaced by the Trium ESG Emissions Impact fund, which Clark says is a market neutral strategy.

As previously mentioned in Asset Allocator, Quilter has seed-invested the launch of a timber fund, and that was added to portfolios during the month. 

Within the ESG model portfolios he runs, Clark has added to his existing holdings in the Sparinvest Global Equity Value fund for his Responsible models. He says this is because he wanted to increase the portfolio's value tilt, and it was funded by trimming some of the holdings he had in ESG growth equity mandates.   

In his Sustainable MPS, Clark has tried to be more diversified, achieving this at least in part by allocating to what looks like the very diversified Triodos Global Equity Impact fund. He describes this fund as large cap and "multi-thematic" and has placed it into portfolios at the expense of smaller company fund exposure. 

Reducing UK exposure is hardly a controversial stance in the current climate, but with most of the developed world on a similar path to the UK in terms of borrowing and inflation (The Netherlands posted an inflation number of an eye-watering 17 per cent recently), it is debatable whether even an actively managed government bond mandate can offer much shelter from the present storm.

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