Liontrust Multi-Asset Quarter in Review - Flipbook - Page 7
WSS/MPS rebalance and underlying fund changes
Given the current backdrop, it seems sensible to suggest the drivers
of investment performance and risk could be very different over the
next decade compared to the last 10 years. We have therefore
reviewed our funds and portfolios in the context of higher inflation
uncertainty and elevated volatility in equity and bonds markets. Over
the coming weeks, we will rebalance the WSS and MPS portfolios
through our annual strategic asset allocation (SAA) update, shifts to
TAA and changes to fund holdings, both in terms of the active/
passive split and underlying managers.
• Taking SAA first, we completed our annual review during Q2 and
began the usual gradual shift towards the new allocation. It is
important to reiterate that moves are not tactical but rather how the
data dictate we can best achieve our volatility targets. Changes
within equities reflect an increased return profile in developed
versus emerging markets. This has meant a fall in allocations to
UK, European and emerging market equities (including small caps
within the first two) and an increase in the US (including small caps),
Japan and Asia. Elsewhere, developed market government bond
exposure fell again and high yield declined, while inflation-linked
and emerging markets debt increased.
• Following our most recent quarterly review, as stated, we have
moved our TAA overall score down from four to three. We have
reduced the magnitude of our active bets, cutting back equity
exposure and tactically increasing cash to give us scope to re-enter
markets when valuations are attractive.
• We have trimmed the tracking error and moved closer to the SAA
(which is effectively our default asset allocation with no tactical
calls) by lowering the equity overweight to neutral. We have also
cut risk further by lowering exposure to equity beta-like assets such
as convertibles, moving that money into our alternatives allocation
via a position in the Liontrust Diversified Real Assets Fund (DRAF).
We believe real assets should provide a differentiated return and
income profile and, importantly given the backdrop, an element of
inflation hedging.
• We have also increased cash from around 2% to 3-4%, offering
both more protection against volatility and some dry powder to
invest at opportunistic moments.
• More broadly, we are also using this rebalance to alter the blend
of active and passive funds across the portfolios, focusing on areas
where we feel we can add the most value through selecting active
managers. For UK and European equities, for example, we are
moving to an overall 70%/30% split between active and passive
funds, compared to 40% active/60% passive in the US.
• Somewhat counterintuitively, overall passive exposure across the
portfolios has increased (by an average of 1.9% for the Growth
portfolios) as a result, but this means we are applying a consistent
approach to active/passive splits across our full Multi-Asset range.
Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2022 - 7