Strengthening diversification as volatility picks up.
We are about to implement our latest Tactical Asset Change (TAC) across our Growth portfolios. In line with our pragmatic, not dogmatic, approach, here is a heads-up as to what we are changing and why. Market conditions permitting, the trades will go through over the next few days.
In summary
Markets have become more volatile and geopolitical risks remain elevated. We are keeping overall equity exposure unchanged, increasing Fixed Income slightly, but importantly adjusting the mix within each asset class to improve resilience and diversification.
What we are changing, and why?
Within equities, we are reducing Europe and adding to US and global strategies. The recent pullback in technology has made valuations more attractive, so we are reducing our underweight to the sector. We are also adding to core, larger company holdings, which lowers the overall cyclicality of our equity exposure. At a thematic level, we are increasing energy and diversified natural resources, partly in place of gold and silver equities, as a hedge against energy and inflation shocks.
In fixed income, we are increasing government bonds slightly but remain underweight. UK and US yields are near multi-year highs. That gives a larger income cushion and more scope for gains if growth disappoints. Inflation risks remain to the upside in the UK and Europe, so bonds in those regions may continue to move in line with equities. We see US Treasuries as the better diversifier. We are therefore adding unhedged US Treasuries and favouring gilts and Treasuries over lower-yielding European government and corporate bonds. We are keeping our underweight to bonds and our short-duration bias. Government bonds also remain highly liquid, which gives us a ready source of funds when it matters most.
Together with our higher US and global equity weighting, this increases portfolios’ US dollar exposure. The dollar has historically tended to strengthen during periods of market stress, which adds a further layer of diversification for sterling-based investors.
Alternatives remain an important diversifier. We are trimming some absolute return funds to improve liquidity and help fund the move into government bonds.
Once the changes are complete, we will publish the full TAC Report, covering rationale, fund details and asset-level positions, along with a short video update.…
Important Information
This video is for information only and does not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this video are those of Casterbridge at the time of recording and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it, may go down as well as up and the investor may not get back the original amount invested.