asset allocator header image

Asset Allocator

from Asset Allocator

Premier grade

Asset Allocator's man standing close to the metaphorical canapes caught up with the latest musings from the multi-manager team at Premier Miton.

Ian Rees and his colleagues have been cautious for a while, and cautious on US equities for a very long while on valuation grounds, but they mentioned to us they are starting to see value in investment grade bonds. 

On the equity front, they continue to plant their flag firmly in the cautious camp, which they translate into favouring the cheapest equity markets, those of the UK and Europe, at the expense of the US.

That is a long standing view of the team at Premier Miton, whose "America last" policy when it comes to equities goes back many years and has, for most of that time, been a difficult place to be in the market. 

Rees told us: "From a top down standpoint it is easy to see why investors remain so bearish (if sentiment surveys are to be believed). Certainly the geopolitical situation is grim with the ongoing war in Ukraine creating havoc in energy markets and with supply chains, while China's zero Covid policy has resulted in a significant economic slowdown in the world’s second largest economy.

"However, the main reason that we have seen a fall in financial asset prices this year is simply a changing of the guard in terms of monetary policy. There is little doubt that investors have benefited from years of ultra low interest rates and now that the punchbowl is being removed, asset prices are having to adjust to a world of higher borrowing costs."

On the fixed income front, he believes the market has begun to discount bad news, and with that in mind he is finding more value in bonds. 

Rees says: "The good news is that financial markets have discounted (as they always do) much of the grim geopolitical situation and higher interest rate world but that is not to say there will be more downside from here and there may well be.

"However, we are now starting to see areas of value emerge in a number of areas including investment grade credit where yields are now higher than they have been for a very long time"

Our database shows the average allocation to investment grade bond funds among the DFMs we cover is 8.6 per cent, which is the highest it has been for more than a year.

There are quite a few outliers within the data, with M&G Wealth having 25 per cent there. Their allocation has recently shot up - but that might have more to do with the fact M&G seems to have recently taken full control of these portfolios after buying TCF earlier this year (indeed the TCF branding recently disappeared completely, but we digress…).

Invesco a chunky 19 per cent, and Progeny having 13 per cent. At the other end of the scale, Liontust are cautious, having just 1.2 per cent in asset class, while Brooks Macdonald have 2.8 per cent. 

All of these allocations have remained fairly stable in recent months.

Get the story behind the stories
The daily newsletter for fund buyers