We have continued to see much success in the returns generated by our clients’ managed portfolios. This is owing to our ongoing active asset management process, through the COVID-19/lock-down crash and recovery, recent increases in market volatility and other various events. Our investment process considers all asset classes, with a focus on:
– The macroeconomic environment,
– Big trend themes,
– Fundamental analysis, and
– Risk return assumptions.
Owing to the consensus outcomes from our investment process, we have maintained a defensive cash weighting in our client portfolios. Throughout the year, we actively have upweighted and down-weighted sector allocations. Our ongoing process has ensured that we have acquired and disposed of counters at the right entry points, whilst maintaining diversified portfolios. This to make sure that we have reduced overall risk.
Our present macro-economic outlook has been informed by:
– The US presidential election and resultant policy narratives,
– The second wave of COVID-19 infections,
– Record low borrowing rates for shorter duration bonds, whilst longer-dated treasuries starting to rise, and
– A weaker US Dollar and possible inflation stimulation in the EU.
Whilst volatility levels have increased, we have down weighted our high beta, volatile stocks, such as the ICT sector and taken profit thereon. As a house, we remain in favour of equities and have maintained our weightings in consumer staples and life insurance companies. Post the US elections, in light of a likely Democratic Party victory and with a promise of fresh stimulus to the US economy, we are looking to position ourselves in the sectors that will profit from a blue victory. This includes large-cap infrastructure, healthcare, food staples, and pharmaceuticals. We continue to perform in-depth research into the sectors that will outperform following a Biden victory and the release of a COVID-19 vaccine. We additionally look to diversify our cash holdings to decrease our
exposure to US dollar volatility.
Our main objective for our clients, remains long-term capital preservation. We therefore continue to actively manage our clients’ portfolios. Our asset allocation is currently constrained due to record low interest rates, poor property fundamentals, Covid related market dislocations and poor fundamentals in certain geographies and sectors. We have no allocation to both property and treasury asset classes. We will look at allocating assets to treasuries and property once interest rates increase to normalized medium term averages. In the short to medium term, the classic 60/40 pension fund asset management spilt is in question: Managers have been forced to look beyond traditional investments and into other riskier fixed income investments. As a house we are resistant to this strategy and prefer to increase our cash holdings, have a full allocation to equities and actively manage the sectors and cash holdings.