Our Portfolio Management team at Moneyfarm constantly monitors and assesses market developments, managing your portfolios with the aim of achieving solid, long-term returns alongside strong risk management.
Looking at the falling inflation rates, analysts’ expectations for 2024, and the increasing difficulty for central banks to sustain the “higher for longer” narrative, we believe that, in 2024, we will begin to see interest rate cuts, or at least, no new hikes.
High inflation and the sharp increase in interest rates have meant that the last 18-24 months have been really difficult for bonds, particularly bond prices. The measure in which bond prices are negatively affected by interest rate increases is called ‘duration’. Bonds with a higher ‘duration’ (usually linked to having a long payback period, or low regular payment) have been hit most of the last couple of years.
Given the prospect of falling interest rates, we now believe it is time to increase the duration of the portfolios.
There are two reasons for this. Firstly, it allows us to “lock in” current interest rates for a longer period by investing in longer-term bonds. Secondly, portfolios will benefit from capital gains, i.e., bond price increases, in the event of interest rate cuts.
In order to lengthen the duration, we have decided to increase our exposure to long-dated American government bonds. We chose to go with the US over the UK, as US inflation seems more stable and under control, meaning the Fed has more room to cut rates. Additionally, by purchasing long-term US bonds, we not only benefit from future interest rate declines but we could also better protect the portfolio in the event of an economic slowdown.
Apart from government bonds and investment-grade bonds, allocations in all other asset classes have remained relatively unchanged.
To find out more about the specifics of this rebalancing, just head to the “Activity” section in your personal account area. If you have any questions, please don’t hesitate to book an appointment with your personal investment consultant.
Richard Flax: Richard is the Chief Investment Officer at Moneyfarm. He joined the company in 2016. He is responsible for all aspects of portfolio management and portfolio construction. Prior to joining Moneyfarm, Richard worked in London as an equity analyst and portfolio manager at PIMCO and Goldman Sachs Asset Management, and as a fixed income analyst at Fleming Asset Management. Richard began his career in finance in the mid-1990s in the global economics team at Morgan Stanley in New York. He has a BA from Cambridge University in History, an MA from Johns Hopkins University in International Relations and Economics, and an MBA from Columbia University Graduate School of Business. He is a CFA charterholder.
*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.