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DFMs play it safe as equity exposures continue fall

Our allocations database reveals DFMs were edging their fixed income allocations upwards towards the end of 2022, while equities remained largely unchanged.

Specifically in balanced portfolios, the allocators we cover upped their bond exposure from 24.5 to 26.8 per cent between October and December 2022. 

In contrast, the average allocation to equities dropped marginally, from 56 per cent to 55 per cent.

Average exposure to equities fell for most of 2022 from a high of 58.9 per cent in March.

Within the bonds bucket, allocators increased their exposures across most of the asset classes, but it was those at opposite ends of the spectrum that benefited most, with government bonds going up from 5 per cent to 6 per cent.

The most widely owned government bond mandate amongst the allocators we cover is Vanguard UK Government Bond Index, which appears in the portfolios of six of the allocators we cover. 

The Allianz Gilt Yield fund appears in four of the portfolios we monitor.

The other bond sector to see an increased exposure was high yield, which now sits at 2.7 per cent.

In the high yield space, it is the Axa US Short Duration High Yield which is most popular, appearing in five of the portfolios we cover. The most popular in this segment used to be Baillie Gifford High Yield Bond, but in common with many other mandates run by that firm, there was a steady stream of sell notices throughout 2022. 

The US comprises the bulk of the high yield market, and investors may feel that short dated is the best place to be in high yield right now, as it mitigates duration risk but also offers greater clarity on the companies’ prospects and ability to repay the debt. 

On the equity side of the book, the DFMs we cover reduced their exposure to global funds between October and December, albeit the change was very modest, less than half a percentage point.

The firm with the largest exposure to global funds in their portfolios is Tacit at 20 per cent, while several firms have zero allocated to these types of funds, including the Evelyn Active range and Brewin Dolphin. 

That is particularly noteworthy as Evelyn Active has the largest exposure to equities in its balanced portfolio among the DFMs we cover, at 77 per cent, and it has risen by about half a percentage point since October. The firm with the lowest equity exposure is Psigma, at 41 per cent.

The biggest drop in equity exposure between October and December was Charles Stanley, where Conservative MP John Redwood is chief market strategist. The firm cut its equity exposure from 59 to 46 per cent. 

It continues to have just 4 per cent invested in UK equity funds, a figure which is unchanged in recent months. 

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