23.08 Liontrust MA Quarter In Review Q2 Literature (Single) - Flipbook - Page 24
MPS Dynamic Passive
The performance of our multi-asset solutions reflected the mixed
fortunes of fixed income and equity markets globally. Most equity
regions were positive but fixed income generally had to contend with
rising interest rates – both actual and anticipated – which was partly
reminiscent of 2022.
Global government bonds sold off, especially US treasuries and gilts,
the former due to statements made by Federal Reserve chairman Jay
Powell that stiffer action might be needed to tackle price rises and the
latter by the Bank of England’s response to the most elevated inflation
among developed nations. Gilts plumbed year-to-date lows.
Globally, equities were generally strong, particularly in North America
and Japan, whereas the UK, emerging markets and Asia sold off slightly.
The US saw strong gains on enthusiasm once again for technology
stocks, driven by the appetite for AI with Nvidia a stand-out performer.
Thankfully, the ‘mini’ banking crisis seen in Q1 has so far proved to be
just that and now seems to no longer be of concern to investors. The
focus is back on inflation and how much policymakers must do to tame
it and the negative economic impact this might have.
In our most recent Tactical Asset Allocation (TAA) review, we retained
our overall positive outlook on markets and equities in general. The
underlying tone in markets has stabilised but investors’ confidence has
subsided from the optimism they had earlier in the year. They seem to
have accepted what central banks were telling them, that interest rates
would have to stay higher for longer to deal with stubborn inflation. But
they are now too susceptible to short-term developments. We agree with
the short-term diagnosis that inflation will be stickier than expected, but
we disagree with any prognosis of severe damage being caused in the
long run. Inflation is trending down, and there are opportunities now to
put investments in place for the longer term.
In Q2 we began to implement the adjustments to our Strategic Asset
Allocation (SAA) that were determined in Q1. Some of these changes,
together with our TAA, put our portfolios on the right side of markets
24 - Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q2 2023
in Q2. A reduction in target exposures to UK equities helped our
relative performance from the beginning of the quarter. We have also
significantly reduced target exposure and duration in gilts and raised
it to high yield bonds. More exposure to Japan would have aided
performance, however – for our SAA, we reduced target exposure
to Japan equities and raised it to Asia and emerging markets, which
weighed on relative performance.
Our negative contribution from emerging markets (EMs) in Q2 followed
two previous quarters of positive contributions from the region. As so
often, the performances of individual countries within EMs were mixed:
India did well on encouraging economic data, and Brazil and eastern
European countries progressed on hopes of interest rate cuts and
other positive news. But worries over China’s post-Covid economic
recovery running out of steam and political tensions with the US were
major negatives for EMs, while South Africa performed badly amid its
ongoing power crisis.
US and Japanese equities and high yield bonds delivered the most
significant contribution to performance.
In our equity holdings, leading performers included Fidelity Index US,
Fidelity Index Japan and Artemis US Smaller Companies. Fidelity Index
Europe ex UK was also a positive performer. However, the emerging
market and Asian ex Japan regions weighed the most through Fidelity
Index Emerging Markets and Fidelity Index Pacific ex Japan, while
Barings Europe Select and Janus Henderson UK Smaller Companies
also detracted from performance.
In fixed income, L&G Active Global High Yield Bond and AXA US Short
Duration High Yield were the leading contributors. Other fixed income
sectors weighed on performance, however, through funds including
iShares UK Gilts All Stocks Index, L&G Sterling Corporate Bond Index,
iShares Corporate Bond Index and Royal London Short Duration Gilts.
Our alternatives holding also detracted from performance through
Liontrust Diversified Real Assets.
