In favour / out of favour

Neil Birrell

Premier Miton's Chief Investment Officer

Neil Birrell, Premier Miton’s Chief Investment Officer and manager of the Diversified fund range discusses an asset allocation change that has been a long time coming.

This is a brief note to provide an update on a recent asset allocation change implemented across the range of six Premier Miton Diversified funds. We will write more on this in the quarterly update note and monthly fund commentaries.

I won’t run through the background to the inflationary and rising interest rate environment we are in; you are well aware of that. But the pressures are accelerating, and central banks have to act strongly, as evidenced by the comments this week from Lael Brainard, who is expected to be the next vice-chair of the Fed.

The focus on asset allocation over the coming months is key as we approach what might be a pivotal time in the global economy and financial markets.

In favour; bonds (it’s been coming)

I have been writing these notes for a long time now. Bonds have regularly featured in the “Out of favour section” as the Diversified funds’ investment team didn’t see strong merits for them as a portfolio diversification tool or the risk / reward profile as attractive enough in a multi asset portfolio. In the Diversified funds that did hold bonds, they were lower risk.

Buying bonds in this environment may seem counterintuitive. But yields have risen a long way and, as always, asset prices discount future expectations. Furthermore, we are concerned that necessary central bank policy shifts will hurt economic growth, possibly lead to recession and all that brings with it. The fact that central banks have left it late to react to inflation, means they have to act hard and fast. That makes a “soft landing” (remember that phrase?) difficult to orchestrate.

Therefore, considering the expected macro environment and looking beyond the current weak bond markets, we believe bonds will be a good asset class to be in. Indeed, given the yields on offer today and interest rate rises priced in, we see value now.

We are focusing on short dated US Treasuries and high quality short dated UK and European credit; hardly very risky! We are not taking on any significant duration or credit risk.

(Out of) Less in favour; equities and cash

Equities have provided the bedrock of the Diversified funds and continue to do so, but we have reduced target weights across the range. In fact they are still higher than they have been in the past. But equities could suffer in a slowing growth environment. We will manage the asset allocation to equities and the equity portfolio accordingly.

Also, we have been holding relatively high levels of cash for some time. Given inflation is eroding its value and bonds are providing better returns, now looks like a good time to switch from cash to bonds.

I should be clear that there is no revolution taking place in the asset allocation of the funds, but this is a shift that we would expect to continue if the macro and market play book goes the way we think it might. If not, we remain flexible. In our view, this is a prudent move.

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Risks

The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Equities (shares) can experience high levels of price fluctuation.

Some of the Diversified funds may experience high volatility due to the composition of the portfolio or the portfolio management techniques used.

Future forecasts are not reliable indictors of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. No other persons should rely on any information contained in this document.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice.

All data is sourced to Premier Miton unless otherwise stated. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

A free, English language copy of the fund range’s full prospectus, the Key Investor Information Document and Supplementary Information Document are available on the Premier Miton website, or you can request copies by calling us on 01483 306090.

Financial Promotion is issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227.  Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

006259/060422

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This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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