Quilter’s WealthSelect managed portfolio service has held off on adding to its fixed income exposure due to concerns over potential inflation and its impact on rate cuts.
At the MPS’s latest rebalance, portfolio managers Stuart Clark, Helen Bradshaw and Bethan Dixon kept the allocation to fixed income stable, saying sticky inflation may lead to delays to the currently priced in rate cuts.
The team believed the risk of a Federal Reserve induced hard recession have been reduced and the likelihood of a hard, soft or no landing is balanced.
They said the outcome of a no landing scenario seems to be gaining traction again but carries a higher risk to market pricing.
Stuart Clark, portfolio manager at Quilter Investors, said: “Given the dovish shift in narrative from the Federal Reserve last December and the resilience of the economy and consumers, we now believe the risk of a hard recession is reduced and instead is more evenly spread between a hard, soft or no landing.
“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.”
According to Quilter, its MPS took profits in recent areas of strength, namely growth managers in the US and Europe, while reducing its underweight to European equity markets overall through increased allocations to the Quilter Investors Europe (ex-UK) Equity and Quilter Investors Europe (ex-UK) Equity Income funds.
The management team also broadly maintained the allocation to alternatives and similar overall allocation changes were made to the Responsible and Sustainable ranges.
But within Responsible specifically, Schroder European Sustainable and EdenTree Responsible and Sustainable European Equity saw weighting increases.
In the Sustainable range, within the corporate credit portfolio the team continued to build the position in T Rowe Price Global Impact Credit to further diversify the manager mix by trimming Wellington Global Impact Bond and BlueBay Impact-Aligned Bond.
Clark added: “Elevated geopolitical risk in the Middle East, specifically the military action in the Red Sea, has seen shipping rates driven higher and supply chains building higher inventory levels – all while there continues to be robust economic activity, with recent economic data in the US and Europe surprising to the upside.
“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.”
amy.austin@ft.com
