The run-up to the beginning of the new tax year is a busy time for our asset allocation team. Annually, we analyse the positioning our of investment portfolios with a view to the long-term future, producing a strategy that we think gives them the best chance of positive returns across our different risk profiles.
The process involves deep analysis of our expected returns based on the economic context our asset classes sit in, along with risk analysis and volatility estimations based on periods which we believe to most accurately reflect the current landscape.
We also carry out numerical simulations aimed at analysing the prospective behaviour of our portfolios in different scenarios, a stress test designed to create robust portfolios that are prepared to deal with any adversity that may arise. All of this informs our decision-making as we allocated our assets for the long-term horizon.
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Richard Flax, Chief Investment Officer at Moneyfarm:
“As we enter a new decade, our annual strategic allocation process is an important opportunity to step back from immediate political and economic concerns to focus on long-term trends.
“The global economy closed the decade in a far healthier position than it began it in. 2019 was a positive ending to a decade which saw global equity markets more than double in value. The 2010s were by no means an economic panacea for the traumas of the previous decade but, in the context of political upheaval globally, the world economy had a relatively calm ride.
“From a macroeconomic point of view, 2020 looks to repeat the pattern of the past few years – low inflation, moderate growth and expansionary monetary policy. It could be tempting, then, to see financial markets as stable, at least in the short to medium term. This could well be a mistake; if recent history has taught us anything, it is to expect the unexpected and be ready to respond to rapidly changing political and environmental landscapes. These will, inevitably, be reflected in financial markets.
“This report focuses on the expected returns of the asset classes that make up our investment portfolios. For long-term returns, keeping equity components as a key part of your portfolio is still the best solution. Fixed income securities, by contrast, will struggle to generate positive real returns to protect capital against inflation.
“Therefore, it remains as important as ever for asset allocation to reflect the risk and return expectations of our investors. This report will detail Moneyfarm’s assessment of the asset classes that make up our different investment portfolios, giving our investors an important insight into our decision-making process for the medium and long term.
“Ultimately, we remain firm in our belief that a balanced approach to investment is the best way to protect and grow capital for the future. As we look ahead to the coming 10 years, our job is to justify that belief on behalf of our investors – we believe our strategy puts us in a very good position to do so.”Download full report