We’ve rebalanced our portfolios

An important part of Moneyfarm’s service is to make changes to our client portfolios when the need arises. In this latest rebalance, we’ve maintained our portfolios’ conservative positioning. 

The outlook for Europe’s economy is difficult, with the ongoing energy crisis adding to a situation of slowing growth and high inflation. In response, we have decided to reduce our exposure to European assets in the higher-risk portfolios. 

We have reallocated the proceeds to different geographies. Firstly, we’ve added to the US, where inflation is in a more favourable position than in Europe or the UK. We also believe there is less chance of a recession in the US and, if there is one, we believe it’ll be milder than in Europe. We’ve also added slightly to the FTSE 100, which is less closely linked to the UK economy than the FTSE 250, with most of its income coming from overseas. Lastly, we’ve added to Japanese equities, as the Bank of Japan’s more accommodating stance provides some diversification benefits to the equity allocation in the portfolios.

On the credit side, we also switched some longer-dated US credit for short-dated UK credit in the lower-risk portfolios, maintaining yield but reducing duration.

As for rates and inflation-linked bonds, we believe that markets are overly positive on how quickly inflation will normalise in the next 12 months (in the US), particularly when compared with the expectations for the eurozone. Hence, we think US inflation-linked bonds look relatively cheap and we have added slightly to global inflation-linked bonds, which is heavily exposed to the US.

We have also slightly reduced the level of currency hedging in the portfolio. While sterling has fallen in the last few days, we still think it’s beneficial to slightly reduce this overweight in our portfolios as the outlook for the UK worsens.

In our socially responsible portfolios, we added a clean energy ETF that invests in companies that actively contribute to the UN’s Sustainable Development Goals. From an investing point of view, this ETF has shown a strong correlation to energy prices, so it can further diversify our ESG portfolios.

If you want to discuss the changes, or if you have any questions about the current volatility, please don’t hesitate to get in touch with our team of investment consultants.