23.08 Liontrust MA Quarter In Review Q2 Literature (Single) - Flipbook - Page 20
MPS Blended Growth
The performance of our multi-asset solutions reflected the mixed fortunes
of fixed income and equity markets globally. Most equity regions were
positive but fixed income generally had to contend with rising interest rates
– both actual and anticipated – which was partly reminiscent of 2022.
Global government bonds sold off, especially US treasuries and gilts,
the former due to statements made by Federal Reserve chairman Jay
Powell that stiffer action might be needed to tackle price rises and the
latter by the Bank of England’s response to the most elevated inflation
among developed nations. Gilts plumbed year-to-date lows.
Globally, equities were generally strong, particularly in North
America and Japan, whereas the UK, emerging markets and Asia
sold off slightly. The US saw strong gains on enthusiasm once again
for technology stocks, driven by the appetite for AI with Nvidia a
stand-out performer.
Thankfully, the ‘mini’ banking crisis seen in Q1 has so far proved to be
just that and now seems to no longer be of concern to investors. The
focus is back on inflation and how much policymakers must do to tame
it and the negative economic impact this might have.
In our most recent Tactical Asset Allocation (TAA) review, we retained
our overall positive outlook on markets and equities in general. The
underlying tone in markets has stabilised but investors’ confidence has
subsided from the optimism they had earlier in the year. They seem to
have accepted what central banks were telling them, that interest rates
would have to stay higher for longer to deal with stubborn inflation. But
they are now too susceptible to short-term developments. We agree
with the short-term diagnosis that inflation will be stickier than expected,
but we disagree with any prognosis of severe damage being caused
in the long run. Inflation is trending down, and there are opportunities
now to put investments in place for the longer term.
In Q2 we began to implement the adjustments to our Strategic Asset
Allocation (SAA) that were determined in Q1. Some of these changes,
together with our TAA, put our portfolios on the right side of markets
20 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2023
in Q2. A reduction in target exposures to UK equities helped our
relative performance from the beginning of the quarter. We have also
significantly reduced target exposure and duration in gilts and raised
it to high yield bonds. More exposure to Japan would have aided
performance, however – for our SAA, we reduced target exposure
to Japan equities and raised it to Asia and emerging markets, which
weighed on relative performance.
Our negative contribution from emerging markets (EMs) in Q2 followed
two previous quarters of positive contributions from the region. As so
often, the performances of individual countries within EMs were mixed:
India did well on encouraging economic data, and Brazil and eastern
European countries progressed on hopes of interest rate cuts and
other positive news. But worries over China’s post-Covid economic
recovery running out of steam and political tensions with the US were
major negatives for EMs, while South Africa performed badly amid its
ongoing power crisis.
Equities and bonds overall provided mixed contributions to
performance.
In equities, the strongest performances were delivered by Fidelity Index
US, AB American Growth and Artemis US Smaller Companies. Fidelity
Index Japan also provided supported. The poorest equity performers
included Fidelity Index Pacific ex Japan and Fidelity Index Emerging
Markets. In the UK, Schroder Income and Janus Henderson UK Smaller
Companies also weighed.
In our fixed income exposure, Aegon High Yield, AXA US Short Duration
High Yield and L&G Active Global High Yield Bond were our strong
performers. However, iShares UK Gilts All Stocks Index and Royal
London Short Duration Gilts dragged on performance, while corporate
bonds weighed through AXA ACT Carbon Transition Sterling Buy and
Maintain Credit and Fidelity Sustainable MoneyBuilder Income.
Our Alternatives holding was also a negative through Liontrust
Diversified Real Assets.
