We rebalanced the Passive and Hybrid portfolios on 18 June.
It’s been a strong few weeks in markets and stocks have rebounded sharply. We think the announcements on trade and tariffs will continue. We expect tariffs to reduce the rate of economic growth in the US and globally, but we don’t see them as a major risk.
Looking through the noise, the global economy and companies are in a decent place. Tariffs will impact businesses but we think having exposure to firms with pricing power and being diversified across different regions can still generate good returns. We expect sturdy economic growth, sticky inflation and strong company profits, which is reflected in our tactical views.
Asset allocation
In April, we added more protection to portfolios; we maintained an overweight to equities but added to government bonds as the outlook became more uncertain. We are now removing the overweight to government bonds.
We’ve also increased the equity exposure in our Hybrid 1 model by 2%. This change is designed to bring the equity exposure more in line with peers and closer to the equity allocation in the model’s benchmark.
Fund changes
In the Hybrid models we added to US mega-cap technology stocks by including the Natixis Loomis Sayles US Equity Leaders fund in the portfolios. Profits among these companies remain stronger than the rest. Our expectations for below-trend economic growth mean we think the mega-cap stocks could outperform by more.
We changed the European equity funds in the Hybrid models. The M&G European value team have recently launched an OEIC version of an existing strategy that we rate highly, enabling it to be added to UK platforms. This prompted a full review of our European equity exposure. We have removed the Lazard European Alpha Fund and Comgest Growth Europe Fund. We replaced them with the M&G European Fund and BlackRock European Dynamic. We expect these two funds to blend well and provide good risk adjusted returns.
Overall we continue to prefer stocks over bonds. We think a resilient global economy should support global company profits particularly among larger companies over the second half of this year.
Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.
