The shift in strategy has led to a turnover of almost 30 per cent of the holdings in the cautious managed portfolio. Turnover was lower for the strategic balanced and high alpha portfolios at 15 and 10 per cent respectively, as they held fewer bonds.
Schroders says the economic environment will be difficult over the next couple of years, with UK earnings’ growth expected to be sluggish at best and negative for some sectors. However, it says equities are cheap because a lot of the bad news has been priced in, so its portfolios stand to reap the rewards of increased equity exposure when prices start to rise.
It has also spotted buying opportunities in the corporate bond market, prompting a move away from gilts. The company says the credit spread – the difference between the yields on Government and corporate bonds – is unusually wide. A year ago, the credit spread was tight, so that the team felt investors in corporate bonds were not being rewarded properly for the risks they were taking above Government bonds.
Spreads have since widened and while defaults are expected to increase, Schroders believes that part of the recent sell-off in corporate bonds was unjustified. It says forced selling by, for example, funds that were hit with redemptions, played a part in falling bond prices.
Head of multi-manager Andrew Yeadon says: “While recognising that there are still plenty of risks and economic headwinds ahead, the distressed market conditions have offered up what we believe is a very attractive buying opportunity, offering more than adequate compensation for taking on increased risk within the portfolios.”