Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 20
MPS Growth
Declines across equities, bonds and commodities impacted our
Multi-Asset 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 selloffs, 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.
20 - 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.
The asset classes contributing the most to performance over Q3
were North American Equities and North American Smaller
Companies, with notable performers including Fidelity Index US
and Artemis US Smaller Companies. Exposure to inflation-linked
bonds was unhelpful, however, reflected in the performance of
Royal London Global Index Linked and L&G Global Inflation Linked
Bond Index.
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. Poorer performers
over the quarter included Fidelity Index Emerging Markets and FTF
Martin Currie Emerging Markets.
