Navigating the winds of change

After the optimistic end to 2019, 2020 has already proved itself to be a year that will be reflected on and most likely studied for years to come. The onset of the Covid-19 pandemic across the globe, combined with the resulting restrictions imposed across various economies to protect its citizens, has changed daily life for at least the foreseeable future.

In response, central banks have been forced to slash interest rates to even lower levels and commence quantitative easing at a faster and a more aggressive pace than during the financial crisis of 2008. Unprecedented peace time policies have been announced by various governments, many of which with the uncertainty of how they will be repaid once life returns to normal.

Setting the course

With such a dramatic change in the global backdrop, at CWM, we feel this is an opportune time to consider how best to deliver our investment strategy and react accordingly by adjusting our approach, and consequently exposure, to the portfolios we manage. Adopting a tactical asset allocation allows us flexibility to tilt our portfolios and better position ourselves to capture market trends, whilst remaining within strict risk parameters.

We also believe this is a good time to re-evaluate the holdings within the portfolios to ensure the type, as well as style, of exposure is most appropriate for the world we now find ourselves in. Investment styles that have proved prudent previously have struggled in this new world and may continue to do so as the events of 2020 have accelerated change that would have taken years to achieve under normal circumstances. The inclusion of additional asset classes in the form of ‘alternatives’ and ‘multi-asset absolute return’ allows for greater diversification within the portfolios, which against this current market backdrop, we feel is a prudent approach.

Anchors aweigh

This rate of change has led to the removal of value investment styles from our portfolios. Value strategies typically invest in cyclical parts of the market; areas which have experienced the greatest disruption due to the ongoing global pandemic. In the UK, this disruption has particularly led to concerns over dividends and the ability to pay these going forward.

Across the varying regional equity allocations value strategies have been redistributed to more growth orientated and long-term thematic mandates, many of which were already held. New holdings have been introduced where added benefit could be achieved.

We have introduced precious metals into our portfolios via gold and silver as a hedge against the debasement of fiat currencies due to the accelerated printing of money at the central banks.  Multi-asset absolute return mandates have also been introduced, where appropriate, to provide diversification as well as potential volatility suppression within the portfolios.

Emerging market debt has been allocated across two existing funds in some portfolios to provide a blended exposure to both local and hard currency debt as opposed to a bias towards local currency. Again, this approach is being taken due to the uncertainty of direction due to the ongoing crisis and the need for a pragmatic view in this environment.

Lastly, with the possibility of any increases to interest rates and increased inflation having been pushed out further due to the current economic situation, floating rate high yield fixed income exposure has been replaced with conventional high yield exposure.

Staying afloat

Whilst the future is still unknown, with many variables at play, by increasing our arsenal and adopting a more flexible approach, we feel the portfolios are better positioned to navigate through this uncertainty and add value over the coming months.

At CWM we recommend clients look to the long term in their investment approach. Our Advisors are always available to speak with you so please do not hesitate to get in touch if you would like to discuss any aspect of your financial planning arrangements.