Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 30
MA Passive
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 nonUK government bonds. 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.
Our strategic asset allocation requires significant exposure to UK
gilts, especially in funds and portfolios with lower risk profiles. Over
the last two decades, the gilts market outperformed the global bonds
30 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q3 2022
market hedged into sterling, benefitting our clients over a substantial
period. But the political events at the end of September in the UK
impacted the gilts market and consequently detracted from our
performance.
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 non-UK government bonds, with our
better performers including L&G US Index, HSBC American Index
and iShares Overseas Government Bond Index. Exposure to UK
equities and bonds, especially gilts, was the least helpful, and poor
performers included Vanguard UK Government Bond Index, iShares
UK Gilts All Stocks Index, Vanguard UK Long Duration Gilt Index and
iShares UK Equity Index and L&G UK Index.
