Liontrust Views Spring 2023 - Flipbook - Page 7
CHANGING?
Adapting our strategic asset allocation
for the next decade
Our world moves ever faster as connectivity increases
and technology advances. Such a world presents many
challenges and opportunities for investors, who must
adapt if they are to optimise their chances of meeting
their financial goals.
This is even more imperative today as the global
economy and financial markets undergo significant
changes that go beyond those seen in 2022. Decades
of globalisation have increased the world’s connectivity
and inter-dependence, while exponential advances in
technology have made financial markets faster moving
and more complex. Sophisticated tools are required to
process vastly greater volumes of data and to identify the
key factors driving markets.
To adapt to this environment, especially one that is
being fundamentally changed by the Covid pandemic
and the fragmentation of globalisation, we have
modified our Strategic Asset Allocation (SAA), which is
the default asset allocation for an investment fund. By
asset allocation, we mean the weightings to different
asset classes such as shares, bonds, commodities and
property. It is designed to provide the best chance
of achieving certain objectives over the long term,
regardless of any shorter-term fluctuations in the relative
valuations of different asset classes. Numerous studies
have demonstrated that the SAA drives most of the risk
and return in investments over the long term.
Earlier this year, Hymans Robertson (Hymans) was
appointed to calculate the SAAs for the Liontrust funds,
which each has its own SAA with a long-term (15 years)
time horizon to match.
Hymans, which has a near 100-year history in financial
services and extensive experience of partnering with
trustees and financial companies, provides access to a
large team of professionals and systems. The SAA will
continue to be reviewed annually to ensure optimal
diversification.
Our approach to creating the SAAs will not change
dramatically: our previous SAAs were based on 15-year
expectations and followed a similar process. However,
there are several enhancements.
A prime improvement will be a greater number of subasset classes in which our Funds can trade. This includes,
for example, an ‘alternative investments’ asset class that
includes listed and unlisted infrastructure vehicles, global
and UK real estate investment trusts, commodities, indexlinked gilts and cash. This will replace our current use of
UK property and facilitates larger and more diversified
allocations to alternative investments in lower-risk funds.
Given that investors increasingly want their investments to
contribute to a better world, supporting the environment
and human welfare, the new SAAs will integrate
Environmental, Social and Governance (ESG) factors.
Assets that score well from an ESG perspective will be
given a premium under the SAA.
The initial consequences of the changes are that our
Funds will increase exposure to high yield and corporate
bonds. Some property exposure will be replaced by a
broader basket of alternatives and exposure to gilts will
be reduced.
We believe that the drivers of successful investing over
the next decade will be different to those seen in the
last one, requiring greater flexibility over asset allocation
and access to more asset classes. We anticipate our
Funds will be known for offering SAAs based on analysis
that gives access to one of the broadest ranges of asset
and sub-asset classes available in the market and that
provide the flexibility to respond to market trends in a
timely fashion.
LIONTRUST VIEWS – SPRING
7
