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Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 7

WSS/MPS rebalance and underlying fund changes
We are living in very challenging times but we believe it is crucial
to adopt a long-term view to investing and to spread risks across a
broadly diversified investment portfolio to address market volatility
and reap rewards from across the asset classes.
We anticipate that the next decade will be very different to the last 10
years or so that saw the US tech growth giants outperform by a long
margin. We are already seeing a less liberated global environment
with weaker capital flows and reduced movement of goods and
labour. Governments will be more inward-looking, devoting fiscal
policies to benefiting domestic populations more by raising expenditure
on public services and infrastructure. We see a multi-speed world in
which national economies behave differently and monetary and fiscal
policies will no longer be in lockstep as governments deal with their
domestic conditions and outlook rather than just following the Fed.
We also expect to see many assets reverting to performances that are
more in line with longer-term trends and fundamentals, including nonUS equities regaining performance.
• We completed our annual review of our Strategic Asset Allocation
(SAA) in Q2 and we continued to implement a shift towards a new
allocation throughout the last quarter.
• We produce low, medium and high-risk SAA allocations, equating
to portfolios 3, 6 and 8 in our 1-10 range of risk profiles (1-8 on
MPS). It is important to reiterate that moves are not tactical but
rather how the data dictate we can best achieve our volatility
targets. Headline changes are fairly small, and overall allocations
to equities, bonds, cash and alternatives are broadly the same as
in 2021.
• Changes within equities reflect an increased return profile in
developed versus emerging markets. This has meant a fall in
allocations to UK, European and emerging markets equities
(including small caps within the first two) and an increase in the US
(including small caps) and Japan. Elsewhere, developed market
government bonds exposure fell again and high yield declined,
while inflation-linked and emerging markets debt increased.
• Following our most recent quarterly review, we kept our Tactical
Asset Allocation (TAA) overall score at three (on a scale from one
to five, with five the most bullish), having reduced it from four in
the previous quarter. This reflects the fact that navigating higher
inflation and volatility, as well as slowing growth, calls for slightly
more defensive positioning. We feel risks to the downside are more
prevalent, so the lower ranking is warranted.
• Our rating for equities overall was reduced from four to three
because of the uncertainties the asset class faces, which will likely
continue to cause volatility, at least for the short term. The risk score
for both European equities and European small caps was reduced
from three to two, given that Europe is the region most at risk from a
protracted conflict in Ukraine and the resulting energy crisis.
• We have been gradually increasing our exposure to fixed income
and raised our rating on global government bonds from two to
three because there are benefits now in diversifying beyond the UK
and yields have risen to more attractive levels. But we have cut our
rating for index-linked bonds from three to two – it is best to buy
inflation protection when the risk is underappreciated, unlike now.
Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q3 2022 - 7

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