Quilter’s WealthSelect Managed Portfolio Service has opted to pause on adding to fixed income investments due to mounting concerns over inflationary pressures and their potential impact on anticipated rate cuts, the portfolio managers have said.
The managers Stuart Clark, Helen Bradshaw, and Bethan Dixon, expressed caution amid a shifting economic landscape marked by geopolitical uncertainties and changing market dynamics.
At the heart of the decision are the following key points:
1. Inflationary pressures: The team highlighted the looming threat of inflationary pressures and their potential to disrupt future interest rate adjustments. They emphasised the risk of persistently high inflation delaying expected rate cuts, prompting a conservative stance towards fixed income investments.
2. Dovish shift in narrative: Acknowledging the recent dovish shift in narrative from the Federal Reserve and the resilience demonstrated by economies and consumer spending, the team tempered their outlook on the possibility of a Fed-induced hard recession. Despite this, they remained vigilant about the potential impact of inflation on monetary policy decisions.
3. Portfolio adjustments: In response to these considerations, the WealthSelect team opted to maintain their fixed income allocation and made strategic adjustments in other areas of the portfolio. They capitalised on areas of recent strength, such as growth managers in the US and Europe, while rebalancing their exposure to European equity markets through targeted fund allocations.
Similar overall allocation changes were made to the Responsible and Sustainable ranges. Within Responsible specifically, Schroder European Sustainable and EdenTree Responsible and Sustainable European Equity saw weighting increases.
Stuart Clark underscored the importance of proactive risk management and adaptive investment strategies in navigating uncertain market conditions. He emphasised the need to closely monitor geopolitical developments and economic indicators, which could shape future investment decisions.
“We have recognised this in the rebalance while reflecting what is a key risk in our minds – the potential for a stubbornly sticky inflation that could prompt central banks to reconsider the widely anticipated downward path in interest rates.
“With this in mind, as well as following the rally seen in December, we opted to maintain our fixed income position and looked instead towards the various regional specific opportunities on offer. We also made further changes to our Responsible and Sustainable ranges, with adjustments made to ensure we continue to deliver the dual mandate that clients come to expect.”
