A study in patience
Over the three years to 31 July 2023 global equity markets delivered healthy returns, benefitting from the global economic rebound following the COVID-19 downturn over the first part of the period. 2022 was more challenging for the asset class as interest rates rose but resilience in economic growth in many developed countries supported a rebound from late 2022.
US and UK equities outperformed over the three-year period. The US market came to the fore during the post-pandemic recovery, benefiting from a large weighting in technology-related names that could support changing work and lifestyle patterns. This market structure was helpful in 2023 when artificial intelligence was an important investment theme. Emerging markets were the main laggard amid disappointing economic performance from China.
In contrast to the equity market strength, bonds struggled against the backdrop of low starting yields, high inflation and rising interest rates. Government bonds fared particularly badly, with mainstream gilt (UK government bond) indices falling more than 30% over the period.
Positioned for the long-term
The portfolios continue to reflect a neutral conviction in equities, which seeks to balance elevated risks but pockets of reasonable valuation. At a time of economic risk and moderating valuations, the focus is on relative value opportunities, favouring more attractively valued markets where the policy backdrop appears more supportive. This leads to overweight positions in Japan and emerging markets, with an underweight in the US.
The government bond outlook has improved, leading to an upgrade in July to overweight conviction versus cash. The asset class also offers portfolio diversification at a time of high economic risks, as meaningful moderation in either economic growth or inflation should support government bonds.
Despite the recent underperformance of UK gilts, yields have risen to levels that appear attractive relative to other global government bond markets and the funds have moved to overweight. While corporate bonds may face risks from any slowing growth, current yield and spread levels support an overweight conviction in investment grade credit.
Although the last 3 years has been a real rollercoaster ride, our approach to active asset allocation has driven outperformance in most of the Risk-Managed Portfolios with a volatility outcome that’s in keeping with their objectives. The active asset allocation component, built in conjunction with Aon, gives us a competitive edge and allows us to act swiftly when unforeseen market events happen at a price point that is cost effective – a fixed ongoing charges figure (OCF) of just 0.25%.
We appreciate the trust that the funds’ investors have placed in us, and we‘re focused on building on this promising start to deliver attractive long-term investment returns, in what will hopefully be a less volatile period.
If you’d like to know more about the Risk-Managed Portfolios, please get in touch with your Aegon contact or visit aegon.co.uk/multi-asset.
Past performance isn’t a reliable guide to future performance. The value of investments can go down as well as up and your clients may get back less than they invest. Please refer to the fund factsheets for full fund details and fund-specific risks.
Opinions are based on the outlook of the Aegon UK Portfolio Management team and shouldn’t be interpreted as recommendations or advice.
Information correct as at September 2023. Link Fund Solutions Limited (LF) is the authorised corporate director of the Risk-Managed Portfolios. This means they’re responsible for the operation of the funds in accordance with the regulations.