Asset allocation changes to Core Risk Portfolios

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As part of our normal review process, we’ve made some changes to the asset allocations of our Core Risk Portfolios, which you can see details of in the tables below this article. These changes were effective from 19 October 2017.

What’s changed?

The main changes are:

  • Reduced equity (shares) exposure in the five least risky portfolios, including a reduced exposure to Europe ex UK equities and US equities.
  • Increased sterling exposure through cash and UK equities.

Why are these changes being made?

We use independent consultant, Morningstar Investment Management Europe Limited (Morningstar) to help us build and manage the Core Risk Portfolios. Morningstar takes strategic and tactical asset allocation decisions with the aim of meeting their two primary objectives, which are:

  • to keep within targeted risk ranges over a market cycle (which can last three to five years or even longer) and
  • to deliver the best possible performance for the amount of risk taken.

To meet these objectives, Morningstar regularly reviews the portfolios and recommends changes it believes will help the funds best achieve these objectives.

Reduced equity exposure

Morningstar has reduced equity exposure across all but the Adventurous and Growth Plus Core Portfolios because the price of equities has risen and Morningstar believes they now look overvalued. Morningstar notes that:

 ‘Europe ex UK equities have performed particularly strongly in recent months. Following a detailed review of the asset class we have less confidence in this sector’s prospects.’

There has also been a reduced exposure in all but the Conservative Core Portfolio for US equities, as Morningstar believe that they too are overvalued.

Increased exposure to cash and sterling

On the increase in cash exposure, Morningstar said:

‘Given the lack of attractiveness from equities and fixed income assets, we recommend raising cash levels further across the range of portfolios, partly to help reduce downside risk. We’ve also recommended increased exposure to Sterling through a combination of increased cash and UK equity exposure and reduced overseas equity exposure because, having fallen greatly since Brexit, we expect that over the medium to long term the UK and sterling should outperform given their valuation attractions.’

Please note – we reserve the right to add, remove and replace funds within the Core Risk Profile Portfolios or alter weightings between funds with the aim of making sure they continue to meet their aims and objectives. We reserve the right to change these without prior notification.

Past performance is no guide to future performance. There’s no guarantee that the funds will meet their objectives. The value of investments may go down as well as up. Investors may get back less than they invest.

What does this mean for investors?

Existing investors don’t need to do anything. There are no other changes to the Core Risk Portfolios. The risk ratings, fund charges and fund objectives have remained the same.  

We’ll be updating our literature with these changes from 19 October 2017 onwards so you may notice both the old and new fund details in use for a time. If you would like more information, please speak to your financial adviser. If you don’t have one, you can find one in your area at unbiased.co.uk

The asset allocation changes in more detail

Conservative Core Portfolio
Conservative Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable Cash 27.0% 29.0% 2.0%
Scottish Equitable UK Corporate Bond 21.0% 21.0% 0.0%
UK Gilts All Stocks Tracker 13.0% 13.0% 0.0%
Overseas Government Bond Tracker 10.1% 10.1% 0.0%
Overseas Corporate Bond Tracker 8.9% 8.9% 0.0%
Scottish Equitable UK Index Tracker 7.0% 8.0% 1.0%
Scottish Equitable Index Linked 7.0% 6.0% -1.0%
North American Equity Tracker 2.0% 2.0% 0.0%
Continental European Equity Tracker 2.0% 0.0% -2.0%
Japan Equity Tracker 2.0% 2.0% 0.0%
Cautious Core Portfolio
Cautious Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable Cash 19.0% 21.0% 2.0%
Scottish Equitable UK Corporate Bond 19.0% 19.0% 0.0%
Scottish Equitable UK Index Tracker 16.0% 17.0% 1.0%
UK Gilts All Stocks Tracker 10.0% 10.0% 0.0%
Overseas Government Bond Tracker 7.4% 7.4% 0.0%
Overseas Corporate Bond Tracker 6.6% 6.6% 0.0%
Scottish Equitable Index Linked 6.0% 5.0% -1.0%
North American Equity Tracker 5.0% 4.0% -1.0%
Continental European Equity Tracker 4.0% 3.0% -1.0%
Japan Equity Tracker 4.0% 4.0% 0.0%
Emerging Markets Equity Tracker 3.0% 3.0% 0.0%
Balanced Core Portfolio
Balanced Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable UK Index Tracker 23.0% 24.0% 1.0%
Scottish Equitable UK Corporate Bond 17.0% 17.0% 0.0%
Scottish Equitable Cash 14.0% 16.0% 2.0%
North American Equity Tracker 7.0% 6.0% -1.0%
Continental European Equity Tracker 7.0% 6.0% -1.0%
Overseas Government Bond Tracker 6.9% 6.9% 0.0%
Overseas Corporate Bond Tracker 6.1% 6.1% 0.0%
UK Gilts All Stocks Tracker 6.0% 6.0% 0.0%
Japan Equity Tracker 5.0% 5.0% 0.0%
Emerging Markets Equity Tracker 5.0% 5.0% 0.0%
Scottish Equitable Index Linked 3.0% 2.0% -1.0%
Balanced Plus Core Portfolio
Balanced Plus Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable UK Index Tracker 27.0% 28.0% 1.0%
Scottish Equitable UK Corporate Bond 11.0% 11.0% 0.0%
North American Equity Tracker 10.0% 9.0% -1.0%
Scottish Equitable Cash 10.0% 11.0% 1.0%
Continental European Equity Tracker 9.0% 8.0% -1.0%
Japan Equity Tracker 7.0% 7.0% 0.0%
Emerging Markets Equity Tracker 7.0% 7.0% 0.0%
Overseas Government Bond Tracker 6.4% 6.4% 0.0%
Overseas Corporate Bond Tracker 5.6% 5.6% 0.0%
Pacific Ex-Japan Equity Tracker 3.0% 3.0% 0.0%
UK Gilts All Stocks Tracker 2.0% 2.0% 0.0%
Scottish Equitable Index Linked 2.0% 2.0% 0.0%
Growth Core Portfolio
Growth Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable UK Index Tracker 33.0% 34.0% 1.0%
North American Equity Tracker 12.0% 10.0% -2.0%
Continental European Equity Tracker 11.0% 9.0% -2.0%
Japan Equity Tracker 9.0% 9.0% 0.0%
Emerging Markets Equity Tracker 8.0% 10.0% 2.0%
Scottish Equitable Cash 8.0% 9.0% 1.0%
Scottish Equitable UK Corporate Bond 7.0% 7.0% 0.0%
Pacific Ex-Japan Equity Tracker 4.0% 4.0% 0.0%
Overseas Government Bond Tracker 3.2% 3.2% 0.0%
Overseas Corporate Bond Tracker 2.8% 2.8% 0.0%
UK Gilts All Stocks Tracker 2.0% 2.0% 0.0%
Growth Plus Core Portfolio
Growth Plus Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable UK Index Tracker 37.0% 40.0% 3.0%
North American Equity Tracker 13.0% 11.0% -2.0%
Continental European Equity Tracker 13.0% 11.0% -2.0%
Emerging Markets Equity Tracker 11.0% 12.0% 1.0%
Japan Equity Tracker 10.0% 10.0% 0.0%
Pacific Ex-Japan Equity Tracker 5.0% 5.0% 0.0%
Scottish Equitable UK Corporate Bond 4.0% 4.0% 0.0%
Scottish Equitable Cash 3.0% 3.0% 0.0%
Overseas Government Bond Tracker 2.1% 2.1% 0.0%
Overseas Corporate Bond Tracker 1.9% 1.9% 0.0%
Adventurous Core Portfolio
Adventurous Core PortfolioOld allocationNew allocationDifference -/+
Scottish Equitable UK Index Tracker 38.0% 42.0% 4.0%
North American Equity Tracker 16.0% 14.0% -2.0%
Emerging Markets Equity Tracker 14.0% 14.0% 0.0%
Continental European Equity Tracker 13.0% 12.0% -1.0%
Japan Equity Tracker 12.0% 12.0% 0.0%
Pacific Ex-Japan Equity Tracker 7.0% 6.0% -1.0%

Source: Aegon UK & Morningstar – October 2017

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