Our portfolio positioning: April 2020
Over the past few years we have been gradually reducing our exposure to UK equities within portfolios. This has helped in the recent turmoil.
In the early period of extreme volatility to mid-March, the FTSE 100 had fallen 33% from the close of 2019, compared to 26% for the S&P 500.
This underperformance is not surprising. The UK market has a relatively high exposure to energy and relatively low exposure to technology. With oil prices at the lowest level in decades, and millions of the workforce now connecting digitally from their homes, the composition of the UK market leaves it at a disadvantage.
Alternatives offer protection
Source: Refinitive Datastream
Within our global equity exposure we have benefited from our exposure to a number of funds that focus on higher growth companies, including a dedicated technology equity fund. While share prices of these companies have fallen in recent weeks, they have generally performed better than major indices.
Perhaps more surprisingly, to some, a fund focused on Chinese equities also helped portfolios through the quarter. Chinese shares performed relatively well in March, as the country passed the peak of its coronavirus spread and the economy restarted.
Vigilance and future action
We are closely monitoring a broad range of indicators in relation to markets, the spread of the virus and countries’ various efforts at containment, as well as the responses of central banks and other authorities to support economies and financial systems.
History has shown that trying to “time” market lows is a difficult exercise, and we prefer an approach of incrementally adding to risk assets such as equities. Triggers that could lead us to increase our equity exposure could include clear signs that the infection rate is peaking or decreasing; the identification of a vaccine that can be mass produced, and a coordinated, credible strategy to prevent the future recurrence or spread of the virus. We would also want to see current levels of market volatility fall to more normal levels.
Gold and alternatives
Within our multi-asset portfolios we have also been helped by our holdings in gold and other alternative assets.
Gold has been volatile in recent weeks but has done its job of protecting value in portfolios (see chart). Other alternative assets have also generally performed well.
Our Diversified Alternative Assets Fund, which accesses some alternative investments using listed equities, has not been immune from the turmoil but has significantly outperformed global equities. “Market neutral” hedge funds, which profit from both rising and falling share prices, have likewise helped to protect portfolio values.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.