Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 24
MPS Dynamic Beta
Declines across equities, bonds and commodities impacted our MultiAsset solutions this quarter. Rising interest rates, ongoing fears of
recession and geopolitical concerns all weighed on financial markets.
The benefits of diversification have been noticeably absent. Fixed
income, which we have pointed out previously this year, would usually
be expected to provide defensive ballast during equity sell-offs, but it
failed to provide any defensive support yet again as yields continued
to rise in Q3. We are in a rare period of extreme stress in which
normal asset class diversification has temporarily broken down.
As part of our asset allocation rebalancing, our target exposure to
fixed income has increased slightly, particularly in favour of credit.
We have been under-weight fixed income for some time but we are
taking the opportunities to reduce this as yields, which are inversely
related to price, increase.
All major global sovereign bond yields have risen this year
and some bond markets, notably the UK, have even performed
substantially worse than equities. While global government bonds
still offer yields below current inflation, they do offer the prospect
of ‘real’ yields further ahead and we believe the asset class still
provides important long-term diversification benefits that help our
products to match risk suitability requirements.
24 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q3 2022
Our exposure to equities has been trimmed, given the uncertainty
that the asset class faces. This reflects the greater uncertainties that
exist currently with respect to interest rate policies and economic
growth. It makes sense for us to tighten up on risk budgets, at least
for the short term.
After being a relative positive in Q2, our Emerging Markets exposure
weighed on our performance in Q3. The region struggled on the
strengthening US dollar and slowing global economic growth.
Emerging markets are particularly vulnerable to the rising dollar
because it raises the cost of their imports and debt repayments
and they may also have to raise their domestic interest rates to
stem outflows of capital. Asia also suffered in particular from the
deteriorating outlook for international trade.
The relatively strongest asset class contributors to performance were
North American Equities and North American Smaller Companies
with some support from Emerging Market Bonds. Prominent
contributors included Fidelity Index US, Artemis US Smaller
Companies and L&G Emerging Market Government Bond USD
Index. Exposure to inflation-linked bonds, real estate and emerging
market equities detracted from performance, with L&G Global
Inflation Linked Bond Index, L&G Sterling Corporate Bond Index
and Fidelity Index Emerging Markets weighing on returns.
