INVESTMENT LINE: OUR CURRENT THINKING ON ASSET ALLOCATION - JANUARY 2022

Though it feels as if markets are facing an inflection point, portfolios already look well positioned for the uncertainties ahead.

OVERSEAS EQUITIES

Excessive US exposure seems unwise to us given the valuations in that market and the rate pressures on the "growth" stocks. Other global markets would appear to offer better value and our preferences remain unchanged this month other than a slight reduction of Chinese equities for adventurous clients.

UK EQUITIES

The political uncertainty in the UK is unlikely to move the dial a great deal. The domestic market presents interesting opportunities given switches in investment styles of late. For some the vulnerability to inflation will be too much to warrant further exposure and so it is for us.

SPECIALIST

The themes are a useful way of allowingforus to obtain focused US exposure in areas we believe present a compelling investment case rather than using a blanket exposure. The current blend of ideas looks sensible - healthcare has struggled but looks decent value and,along with global insurance,provides a relatively defensive allocation.

FIXED INCOME

The weaknesses here are obvious and Treasuries have been under pressure from increasing rate expectations. The short end of the curve has faced significant headwinds and the uncertainties are likely to continue. Carefully selected corporate debt (of decent credit quality) and convertibles continue to feature in most portfolios.

PROPERTY

The sector has enjoyed the recovery post the initial Covid-19 shock and can perform well in an inflationary environment. Along with infrastructure it provides a core real assets exposure.

ALTERNATIVE STRATEGIES

It is important to be discriminating here - many of the protection vehicles will find it hard to navigate the uncertainties over inflation and interest rates so have to be selected carefully. Other alternatives present an opportunity to add some diversification and alpha and are included in portfolios in modest amounts.

CASH

Cash remains slightly elevated given concerns over some market valuations.