Investment Committee is a new online series following on from its success in the magazine. We choose five heads of research, CIOs or senior directors from influential firms to form a panel of experts who give an insight into their firm's asset allocation meetings. Over a period of 10 weeks, each member writes two pieces.
Anderson Strathern’s Harry Morgan outlines the company’s investment process and its key themes for the coming year in the second week of the panel.
Anderson Strathern’s monthly asset allocation meeting gives all our investment professionals (rather than just a select band) the opportunity to contribute to the debate and to learn from their colleagues.
The meeting therefore helps bind the team into the investment process and delivers clear guidelines for portfolio construction.
We take decisions by consensus. We expect those attending to be well briefed, to avoid the distractions of market noise and to be long-term in their thinking.
Johnny Lau and Neal Caldwell lead the debate in reviewing economic developments and market valuations, and we assess sentiment, momentum and valuations.
We analyse each asset class before deciding whether changes are required. Over the past eight months, we have reduced some of our calls against our benchmarks, taking profits (for example) from property and building up our corporate bond exposure.
We performed strongly in 2013, helped by our overweight in equities and property. In 2014, we lost some of this outperformance, largely because we held no gilts. Our concern over risk in the gilt market proved premature, although we were not alone.
We have picked up some lost ground in recent months, and 2015 has started off well. We see our April asset allocation meeting as being particularly important in terms of positioning portfolios for the remainder of the year and beyond.
Deflation vs inflation
In January, we thought the key themes for 2015 would be continued US dollar strength, political uncertainty in the UK, central bank intervention and a tussle between the forces of deflation and inflation.
We thought that equity valuations were reasonable, but not compelling, with UK mid caps, Asia Pacific, Japan and emerging markets favoured. We are sticking to those views. Clearly, the oil price fall has been a significant development since then.
In February, we discussed whether deflation concerns meant that we should shift course and invest in gilts. Thankfully, we resisted the temptation.
We slightly increased our exposure to corporate bonds and to European equities. We made no changes in March, and the current position for our typical Balanced client is shown in the chart.
In 2014, we invested in Neptune Mid 250 as a way of translating our positive view on the UK economic recovery in to client portfolios. The fund has a relatively low beta and much more of a domestic focus than large cap funds.
We also invested in Investec Asia ex Japan. This stock-picking fund reflected our positive view on the impact of economic reform in China, and looked less exposed than others to the impact of a US interest rate rise.
Our April asset allocation meeting will probably stick with the 70/30 split between equity and other for a Balanced mandate.
Competitors may prefer to hold more in bonds, but we still see risks in conventional and index linked gilts, given their vulnerability to a shift in interest rate sentiment.
In contrast and boring though it sounds, UK Income funds still look attractive and are a core component across portfolios.