Liontrust Multi-Asset Quarter in Review - Flipbook - Page 30
MA Passive
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 would be expected in falling markets, the MA Passive funds have
continued to outperform our MA Active and MA Blended offerings over
the quarter on a relative basis. Growth stocks, including the majority
of small and mid-cap companies, have been indiscriminately punished
in market sell-offs and as actively managed funds are naturally more
skewed towards this end of the market, they have lagged passive
offerings. That said, our Active and Blended portfolios, via underlying
value-oriented actively managed funds, have had greater exposure to
the ongoing value rotation than the MA Passive vehicles.
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 in the Reserve, Moderate and Intermediate offerings, and
30 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2022
although this weighting has fallen significantly, it continues to have
an outsized impact on overall performance. Over the last year for
Passive Reserve (risk profile 2), for example, UK gilts have declined
from around 45% of our SAA to 35%, and had dropped under
30% before a recent move out of credit and into government bonds.
Highlighting the impact of this, the duration of bond exposure across
our Passive range has fallen by around two years.
In a tough period for equities, more value focused markets, or
at least those with a higher weighting to energy such as the UK,
outperformed on a relative basis, being less impacted by the broad
and indiscriminate sell-off in growth companies.
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. Again, this helped relative performance for
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, exposure via our iShares, L&G
and HSBC offerings was among our better contributors.