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Asset Allocator

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DFMs cool on US equities for income

With inflation rising and markets tumbling, we thought we would take a peek at our Asset Allocator income database to see how discretionary fund managers are allocating in the current climate, particularly to US equities. 

Perhaps unsurprisingly given the rise in bond yields, the average exposure to global equities fell slightly throughout 2022, from 51 to 49 per cent.

Wise Investment Management, with 69 per cent, is the most overweight to equities here, followed by AJ Bell at 67 per cent.

At the other end of the distribution, Invesco seems to be least keen on the asset class for its income portfolio, with just 28 per cent allocated there, and Handelsbanken has 30 per cent allocated there. 

But what of US equities in particular? 

These comprise around two-thirds of the global index, but are typically viewed less favourably by income investors due to the relative lack of yield. 

The average allocation to US equities in the income portfolios of the allocators we cover dropped during 2022 to 9 per cent in the second and third quarters, down just over half a percentage point since May 2022, when it was at 10.1 per cent.

It rose again - albeit incrementally - to 10.2 per cent at the year end. 

The Evelyn Active model income portfolio has the largest allocation to the US market, with James Burns and his team having 22 per cent in the US market. The next highest allocation is the 20 per cent of John Husselbee and his team at Liontrust. 

At the other end the range, You Asset Management and Hawksmoor, have zero in US equity funds in their income portfolios. 

Despite the US market's reputation for being a tough hunting ground for the dividend-hungry, the most popular fund among DFMs across all of our portfolios is the JP Morgan US Equity Income fund, which is owned by 12 of the 42 DFMs we cover. 

This fund, which has been run by Clare Hart since 2008, is £4.2bn in size, but the wider strategy run by Hart and including institutional and US-compliant versions, is $75bn in size, meaning Hart most likely runs more money for clients than any other woman on earth.

The fund has a yield of 2.3 per cent and has had a strong year, losing just over 1 per cent, compared to the sector average loss of 7 per cent. 

And there has been no sign of allocators falling out of love with the fund, as it has a net four new buyers to one seller since the start of 2022. 

All of the next most popular generalist US equity funds are trackers, the fact that dedicated US equity income tracker funds are not currently owned by any of the allocators we cover, reveals the extent to which Hart’s fund has cornered that particular part of the market. 

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