Further risk reduction looks warranted as market conditions deteriorate and visibility on the short term economic outlook deteriorates.
OVERSEAS EQUITIES
No area is immune from the global sell-off. Those areas which have benefited from strong global growth and low rates look the most vulnerable as it is not surprising to see us reduce some smaller companies exposure. India has enjoyed a strong run and we are trimming in some portfolios.
UK EQUITIES
The UK economy is not in a great place and a recession is a strong possibility in the next year. Smaller companies will face headwinds, but even then some look well placed and even “defensive” – investors should remember that the larger cap names in the UK have been relatively protective as other equity markets have stumbled. No changes here.
SPECIALIST
The thematic areas in the portfolios are not immune from the falls in valuations though areas like insurance have shown some defensive characteristics. Infrastructure has also been very helpful in portfolios. Technology and Environment look vulnerable shorter term and we reduce these (modestly) accordingly.
FIXED INCOME
We are removing emerging market debt exposure given the problems in many emerging economies and the current strength of the US dollar. Though vulnerable to rising rates, US Treasuries are now at levels which are more attractive and could benefit from the Federal Reserve relenting on its rate hikes if the economy cannot withstand them.
PROPERTY
Property has been very helpful of late, and REITS usually hold up well in stagflationary environments, making our current exposure look sensible. A recession could be a real concern of course, but for now our exposure seems OK.
ALTERNATIVE STRATEGIES
Those vehicles which meet our requirements are likely to be able to make a contribution in markets beset with uncertainty and increased volatility, but in truth there are not that many which are suitable. Allocations remain focused and tailored to client risk appetite.
CASH
In the current environment, holding extra cash for protection is more than justified. Yes, inflation is unkind to cash, but it is to all asset classes and not falling in nominal terms is an attractive characteristic for now.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns.
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