Multi asset: De-risking after equity rally

We go into the summer having de-risked somewhat, taking profits after a strong equity rally.

Our proprietary Investment Clock has been indicating that we are in the stage of the economic cycle in which global growth is improving (if slowly) and interest rates can begin to fall this year as inflation has weakened. The US has been the best performing major economy while Europe and China have weaker growth and demographic pictures. Geopolitical risks remain but, with a marginally improving global growth backdrop, we remain slightly overweight equities in our multi asset funds. However, we are less exposed than we have been over the last 18 months, having taken profits given seasonality is observable in equity returns over the years. This summer, after a strong equity rally, may well give us dips to buy.

The Investment Clock

Staying in Overheat

Source: RLAM. For illustrative purposes only. Trails shows monthly readings based on global growth and inflation indicators. Yellow dot shows where we are in the cycle.

Cross asset

• Equities: neutral having taken profits given seasonality is not favourable post a strong rally
• Commodities: slightly underweight but retained as an inflation hedge (geopolitical risks remain)
• Property: slightly underweight as interest rates are yet to fall and stimulate the UK commercial market
• Government bonds: added to move to neutral as we get closer to interest rate cuts
• Credit: constructive, but watchful for signs of stress

Equity regions

• Overweight US equities given superior economic performance in America, compared to Europe and China, and the strength of tech-related earnings
• Neutral in Japanese equities which have done well on yen weakness, having taken profits
• Underweight Europe given weak growth in major economies such as Germany persisting
• Neutral on Asia Pacific and in Emerging Markets; Chinese government comments about improving its property sector’s debt issues could lead to positive action

Currencies

• Neutral in major currencies given geopolitical risks and elections potentially causing volatility

Sectors

• Overweight the attractively valued financials and materials sectors
• Underweight energy as oil and gas price inflation has moderated
• Underweight in technology, having taken profits given elevated valuations

Where we stand

Overweight global high yield, financials and materials sectors. Underweight commodities, Europe stocks and energy and consumer discretionary.

Weightings may vary according to tactical asset allocation and the Fund may invest outside of indicated asset classes as the manager sees fit. The views expressed are the author’s own and do not constitute investment advice.

Source: RLAM. Tactical positions as of 29 July 2024.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.