Liontrust Multi-Asset Quarter in Review - Flipbook - Page 28
MA Blended
Another difficult three months for markets saw most of our holdings
in negative territory, with concerns around potential recession in
a rising interest rate environment and ongoing war in Ukraine
weighing on sentiment.
As we highlighted earlier, fixed income would usually be expected
to provide defensive ballast during equity sell-offs but bonds have
not only become correlated with shares in the short term, their
performance has actually been worse, particularly in the UK. A
rising rate environment is clearly difficult for this asset class, and our
funds across the fixed income spectrum struggled over the period;
lack of bond exposure was therefore a relative positive for our
higher-risk models.
The current SAA for our MA funds maintains a large weighting
to UK gilts for the Reserve, Moderate and Intermediate offerings
and although this weighting has fallen significantly (bringing overall
duration down), it continues to have an outsized impact on overall
performance. Over the last year, in Blended Reserve (risk profile 2),
UK gilts have declined from around 45% of our SAA to 35%, for
example, and had dropped under 30% before a recent move out
of credit and into government bonds.
With the value rotation continuing, our equity holdings skewed
towards that end of the market were the top performers over
the period but even these struggled amid widespread volatility.
Stronger contributors included Man GLG Japan CoreAlpha, Liontrust
European Dynamic, Evenlode Income, JOHCM UK Dynamic and
Ossiam Shiller Barclays CAPE US Sector Value, an ETF based on
Shiller’s CAPE (cyclically adjusted PE) metric and skewed towards
the four most undervalued sectors on a monthly basis.
28 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2022
Given the environment, another solid US performer was the iShares
Edge S&P 500 Min Vol ETF, which tracks the performance of
an index composed of selected large-cap US companies that,
in aggregate, have lower volatility characteristics relative to the
broader market.
While our value skew was positive on a relative basis, it was
more than offset by weaker performance from growth, quality and
small-cap positions, with holdings such as Baring Europe Select
among our hardest-hit over the quarter. As ever, fears of recession
are having a greater impact on domestically focused small caps.
Another relative positive was our Asia and emerging markets
exposure, which had a better quarter than several other markets as
Chinese equities rallied on the back of authorities lifting the strict
Covid lockdown in Shanghai. This helped relative performance
on higher-risk models, which have considerable exposure to the
region.
While the Chinese index has climbed almost 19% since falling to a
trough in April, the outlook for the world’s second-largest economy
remains subdued and commentators are questioning whether the
rebound is a mean-reversion to pre-lockdown levels rather than
a sustainable rally. For now, however, funds including Vontobel
mtx Sustainable Emerging Market Leaders, Fidelity Asia Pacific
Opportunities and Federated Hermes Asia ex-Japan Equity, and
passive exposure via iShares Emerging Markets Equity and L&G
Pacifc Index, were among our better performers.