Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 26
MA Active
Declines across equities, bonds and commodities impacted our
Multi-Asset solutions this quarter. Rising interest rates, ongoing fears
of recession and geopolitical concerns all weighed on financial
markets.
The benefits of diversification have been noticeably absent. Fixed
income, which we have pointed out previously this year, would
usually be expected to provide defensive ballast during equity selloffs, but it failed to provide any defensive support yet again as
yields continued to rise in Q3. We are in a rare period of extreme
stress in which normal asset class diversification has temporarily
broken down.
As part of our asset allocation rebalancing, our target exposure to
fixed income has increased slightly, particularly in favour of non-UK
government bonds. We have been under-weight fixed income for
some time but we are taking the opportunities to reduce this as
yields, which are inversely related to price, increase.
All major global sovereign bond yields have risen this year
and some bond markets, notably the UK, have even performed
substantially worse than equities. While global government bonds
still offer yields below current inflation, they do offer the prospect
of ‘real’ yields further ahead and we believe the asset class still
provides important long-term diversification benefits that help our
products to match risk suitability requirements.
Our strategic asset allocation requires significant exposure to UK
gilts, especially in funds and portfolios with lower risk profiles.
Over the last two decades, the gilts market outperformed the global
bonds market hedged into sterling, benefitting our clients over a
substantial period. But the political events at the end of September
26 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q3 2022
in the UK impacted the gilts market and consequently detracted
from our performance.
Our exposure to equities has been trimmed, given the uncertainty
that the asset class faces. This reflects the greater uncertainties that
exist currently with respect to interest rate policies and economic
growth. It makes sense for us to tighten up on risk budgets, at least
for the short term.
After being a relative positive in Q2, our Emerging Markets exposure
weighed on our performance in Q3. The region struggled on the
strengthening US dollar and slowing global economic growth.
Emerging markets are particularly vulnerable to the rising dollar
because it raises the cost of their imports and debt repayments
and they may also have to raise their domestic interest rates to
stem outflows of capital. Asia also suffered in particular from the
deteriorating outlook for international trade.
The region contributing relatively the most to performance across
our Active funds was North American Equities. Within this, the most
prominent contributors were AB American Growth and Ossiam
Shiller Barclays CAPE US Sector Value, an ETF based on Shiller’s
cyclically-adjusted price to equity metric and skewed towards the
four most undervalued sectors on a monthly basis. The iShares
Overseas Government Bonds Index was also a leading contributor.
Exposure to bonds, especially gilts and, in our higher risk fund, to
emerging market equities, detracted from performance, with poorer
performing funds including Vanguard UK Government Bond Index,
Liontrust Sustainable Futures Corporate Bond, iShares UK Gilts
All Stocks Index and Vontobel mtx Sustainable Emerging Markets
Leaders.