Against a backdrop of global uncertainty, financial markets have enjoyed a healthy rally this year, buoyed by monetary policy.
Investors now seem reassured that the Federal Reserve is taking a more cautious approach to monetary policy in an attempt to protect economic growth and avoid a nasty fall-out on the financial markets.
But, after two years of slowing global growth and inflation expectations – amplified by the US-China trade spat – is the market wise to rely on the Fed always being there to save the day whenever it has a wobble (or worse)?
In the UK, the outcome of Brexit seems no more certain than it was the last time we adjusted the Moneyfarm portfolios. Whilst some adjustments have been made to our UK exposure, we’re not keen to aggressively bet on any one political outcome at this point.
Crucially, we have not strayed from our investment strategy, which prioritises global diversification, investing for the long-term, and avoiding knee-jerk reactions to the latest twist and turn of the Brexit saga.
Changes made to portfolios
Against this backdrop, the aim of this rebalance was to manage our fixed income exposure, without impacting the expected returns of the Moneyfarm portfolios.
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As our positions in global fixed income helped limit the impact of volatility over the last few months, the Investment Team looked to shift some of the UK exposure to take advantage of global opportunities.
In portfolios with a low to balanced risk exposure, the Investment Team reduced our positions in UK inflation-linked bonds in favour of currency hedged global sovereign bonds.
In higher risk portfolios, we have increased the yield by swapping UK sovereign bonds short-maturities for global sovereign bonds sterling hedged, and global investment grade credit denominated in US dollars.
Since the additional US dollar exposure has been hedged to maintain what the Investment Team views as an appropriate level of sterling exposure, we were able to pick up some yield without adding currency risk.
After this rebalance, Moneyfarm Portfolios are more globally diversified. By increasing exposure to the US, the Moneyfarm Portfolios are in a better position to take advantage of the Fed’s more cautious approach to monetary policy, which should support financial markets over the short-medium term.
If you have any questions about the changes in your portfolio or the current environment, please don’t hesitate to get in touch. Our Investment Consultants are available to provide market insight and investment guidance, whether in person, on the phone or via email. Please email firstname.lastname@example.org or book a call.