23.08 Liontrust MA Quarter In Review Q2 Literature (Single) - Flipbook - Page 26
MA Explorer
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 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 in
Q2. A reduction in target exposures to UK equities helped the relative
26 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2023
performance of our mid-risk funds 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 for all but our lowest risk fund and raised
it to Asia across the board and to emerging markets in our lowest risk
funds, 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 provided the strongest contribution to performance through the US,
Japan and Europe ex-UK regions. Key performers here included Loomis
Sayles US Growth Equity, Ossiam Shiller Barclays CAPE US Sector Value,
AB American Growth, Man GLG Japan Core Alpha Professional, Baillie
Gifford Japanese, BlackRock European Dynamic and Liontrust European
Dynamic. But emerging market, developed Asia and UK equities were
negatives, with poor performers including Vontobel mtx Sustainable
Emerging Markets Leaders, BlackRock Emerging Markets, Fidelity Asia
Pacific Opportunities and Federated Hermes Asia ex Japan Equity.
In fixed income, high yield, emerging market and global ex-UK bonds
were positive contributors, with contributing funds including Barings
Global High Yield Bond, Barings Emerging Markets Sovereign Debt
and Vanguard Global Aggregate Bond. Medium-term gilts detracted
the most from performance overall, with poor performers including
iShares UK Gilts All Stocks Index, L&G All Stocks Gilt Index and
Vanguard UK Government Bond Index.
Our Alternatives holding was also a negative, with L&G Global
Infrastructure Index and iShares UK Property weighing the most.
