Investment management review of January.
Our in-house experts on the Investment Management team manage the True Potential Portfolios to help you do more with your money.
Their three goals are to:
- Maximise returns within a risk profile ranging from defensive to aggressive
- Reduce risk of volatility
- Drive down the cost of ownership
Our team works with 9,620 experts in 162 locations around the world, using their on-the-ground expertise to make decisions about the asset allocation of the True Potential Portfolios.
January was a good month for the True Potential Portfolios with all ten Portfolios providing positive returns. You can see the past performance of the Portfolios at the bottom of this page.
What were the key themes in January?
- A positive start to the year for the True Potential Portfolio proposition.
- Headline and core inflation have peaked in the developed world. Falling energy prices combined with base effects in annual inflation calculations may allow for inflation to fall quicker than initially expected.
- A ‘Fed pivot’, where the US Federal Reserve cut interest rates, is unlikely in the near term unless labour markets weaken. The possibility interest rates move significantly higher has lessened. We believe we are now close to an interest rate peak in the US.
- China’s reopening is important. We believe a rebound in Chinese economic growth will be a significant driver of global economic growth this year. We recognise the potential for pressure on commodity prices.
- An earnings slowdown remains the main risk for equities, nevertheless, valuation, the price you pay, is attractive outside of the US, particularly in UK and Japan.
- Valuation opportunities are most attractive in fixed income assets, sovereign bonds and UK corporate bonds.
- The above opportunities are likely to be funded from a reduction in cash levels and sales of alternative assets.
High nominal GDP continues to support earnings, despite leading economic indicators hinting a slowdown in growth. The Q4 earnings season in the US, reporting now, is likely to reflect a more conservative outlook. The probability of a US recession in the latter half of 2023 continues to be a risk; however, the severity and potential length has moderated.
China is reopening rapidly after abandoning their zero-Covid policy. This has the potential to boost the earnings potential for the rest of the world. Domestically, saving levels are elevated for Chinese households. Data from the People’s Bank of China show that renminbi deposits held by households nationwide grew in 2022 by a record Rmb17.8tn ($2.6tn), a huge surge compared with growth of Rmb9.9tn in 2021. On top of this, there is growth-focused policy stimulus. We have made additions to emerging market equities and bonds within the True Potential Portfolio proposition which has been beneficial.
US inflation continues to decelerate such that the last 6 month-on-month US CPI prints, annualised, are now below 2%*. However, the wage component remains elevated, and there has been no significant change in unemployment. European inflation has in the main peaked, with negative month-on-month readings from Germany and France recently.
The True Potential Portfolio proposition is prudently positioned in respect of equities compared to history, equity exposure has increased in recent months as opportunities have presented. Additions are taking place to more cyclical sectors and stocks.
Valuations continue to support the case for increasing allocations to fixed income asset classes. Within the True Potential manager cohort, some managers remain neutrally positioned, fearing stickier US inflation outcomes and the US central bank continuing to raise interest rates. However, most are, expecting broad disinflation and a slowdown in real economic growth through 2023.
Alternative investments remain a structural part of the proposition and were beneficial in 2022. When many of the True Potential manager cohort held alternatives as a substitute for fixed income. However, given the significant increase in bond yields, tactical opportunities are more prevalent within bond markets. The one exception gold, which has increased within the proposition.
*Source BLS 31.01.2023
What changes have we made to the True Potential Portfolios?
Taking into account the themes from the month and our view for the future, we made active changes to the following Portfolios:
Trading was focussed on additions to fixed income, particularly government bonds.
Where no change has been made, this is due to our conviction that the Portfolio is positioned optimally.
Additions to Portfolios.
True Potential 7IM Defensive fund position increased within the True Potential Cautious+ Portfolio to take advantage of opportunities within fixed income and to maintain equity weightings.
True Potential Pictet Balanced fund added to within the True Potential Cautious+ Portfolio. Introduced last month, it was increased further to provide manager diversification through thematic equities and take advantage of opportunities within sovereign fixed income.
Added within the True Potential Defensive Portfolio to reduce exposure to cash and take advantage of opportunities within sovereign fixed income.
Goldman Sachs Balanced
This fund was reduced within the True Potential Cautious+ Portfolio. The fund has a large exposure to alternative assets, an asset class we believe provides structural benefits over the long term, but tactically there are better opportunities elsewhere.
This fund was reduced within the True Potntial Defensive Portfolio to lower exposure to cash and take advantage of opportunities within sovereign fixed income.
What changes have our fund manager partners made?
Although we have made no changes to some Portfolios, examples of changes that have been made by our fund manager partners are below. In line with our view, fixed income as an asset class has been increased.
Pictet – Increased exposure to Asian equities.
Close Brothers – Significantly increased exposure to both UK and US government bonds, funded from cash.
Growth Aligned – Additions to longer dated UK government bonds and UK corporate bonds, as well as increasing Sterling exposure from US Dollars.
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With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This blog is not financial advice or a personal recommendation.
|Annual Percentage Growth (Net of Portfolio OCF)|
Past performance is not a guide to future performance.
Launched 1 October 2015. *Income subject to revision in the current market environment. Yield figure indicated on this page is the forward-looking 12-month yield, net of charges and UK withholding tax. Personal dividend tax charges may still apply and is subject to individual circumstances.
With Investing, your capital is at risk. Investments can fluctuate in value, and you may get back less than you invest. Past performance is not a guide to future performance. This blog does not constitute a personal recommendation or financial advice.