Please find below our Weekly Market Update for the week ending 29th November 2019.
Blue Sky Comment
How are we positioning our portfolios ahead of the election?
We’ve covered a lot of ground on what is likely to happen if various scenarios unfold and of course this has implications for how we position our portfolios.
First though, some comment about the use of both active and passive strategies. In our opinion now is the very time when we need active investment strategies. There is a strong argument to say that at this stage of the economic cycle, we should now be titling portfolios towards value stocks as opposed to typical growth assets. However, undoubtedly there are still great opportunities within growth stocks, and this is something we have identified in previous communications. An example being UK smaller companies. The potential for growth opportunities may also be prolonged if fiscal stimulus occurs across the various economies.
Passive strategies certainly have their place. They are cheap and if passive strategies embrace a tactical overlay, such as the L&G multi index range, they really do have a place in the Blue Sky offering. So, as a company we don’t buy into the polarisation of active v passives, just as we don’t personally, buy into far right or far left politics. However, we have to be ready for anything and not let biases affect our decision making.
As the temperature rises across the political landscape and the election gets closer, we have been increasingly asked ..”how we are responding to the possibilities of a change of government and indeed a hung parliament?” The polls show the Tories in prime position, but we know how unreliable the polls can be!!
Our investment partners, LGT Vestra, 7IM and L&G IM are adjusting their portfolios, some having a higher cash weighting, some moving towards a stronger infrastructure holding, others increasing their weighting towards value stocks. Complementing these approaches, we have our own in house portfolios, the biggest being our Sapphire range. Here we have a circa 25% exposure to both UK and global infrastructure assets which have proved to have a relatively low correlation to equities and bonds. We also like the Sustainable space and are hugely impressed with LGT Vestra’s offering.
As an investment committee we have sat down and looked at our strategies very carefully. Like our investment partners, we have been adjusting the balance of assets and believe that we are well positioned for the likely scenarios. On average, our portfolios have a 25-30% exposure to the UK, made up of large, mid and small cap stocks all of which may behave very differently to each other depending upon the outcome. However, we also hold UK bonds which may also behave differently to equities.
In other words, whilst we have a blend of UK assets, most of our client’s exposure is on the global stage. After the referendum in 2016, we saw how the FTSE 100 recovered and surged because of the strong corporate news coming out of the US whilst many UK domestically exposed companies saw their share price come under pressure. We won’t be making a switch ahead of the election but of course we are always ready to respond to any unexpected twists and turns, in conjunction with our investment partners.