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Cautious crew switch to fixed interest

Adviser Fund Index

Cautious portfolio allocations made a marked shift towards fixed-interest funds in the May rebalancing, with a gain of four percentage points on average.

The most popular new entrant, as measured by the number of panellists who held it in their cautious portfolio, was the Swip multi-manager diversity fund.

It achieved a return of 11.1 per cent over three years to May 24, according to Financial Express.

The fund is mainly invested across a range of equities but has a weighting of 28.2 per cent in fixed interest.

In descending order, the next most popular new entrants were Veritas global equity income, M&G UK inflationlinked corporate bond, Aegon high-yield bond and Insight absolute credit.

The M&G optimal income fund remains the most popular AFI cautious fund overall, with seven occurrences. It is followed by the Artemis income, Legal & General dynamic bond, First State Asia Pacific leaders and M&G property portfolio funds.

The Ignis Argonaut European income fund was ejected during rebalancing. It had three occurrences after the November 2010 rebalancing.
Other ejected funds include M&G European high-yield bond, Cazenove strategic bond, Jupiter international financials and BlackRock European absolute alpha.

Regional shifts in allocations were less dramatic. North American equities and “other” both gained 2 per cent while British and Japanese stocks both gained 1 per cent. There was a 3 per cent reduction from international, while Europe excluding UK, the Pacific Basin, Asia Pacific and cash all lost 1 per cent.

The uncertain outlook for interest rate levels is having an effect on AFI panellists’ cautious portfolio asset allocations. There are arguments both for and against fixed-interest products in this environment. The debate centres on the timing of the Bank of England’s potential rate rises.

Chelsea Financial Services managing director and AFI panellist Darius McDermott says although he did not move towards fixed-interest funds, he understands why it is a favoured route.

He says: “The shift towards fixed interest is probably due to people being nervous about the markets. Interest rates are obviously a concern. It was thought that they would come in May but at the moment it looks as though a rate rise is getting further and further away. It is reasonable to expect that a rate rise might not happen this calendar year.”

In its cautious portfolio, Chelsea has allocated assets to the Artemis strategic assets fund and away from Jupiter absolute return.

Ashcourt Rowan head of fund research Tim Cockerill says he did not expect the shift to fixed interest.

He says: “I am very surprised. The broad consensus is that interest rates will go up sooner or later. We are already on emergency rates and when they go up, it will have a negative effect on fixed-interest products. Investing in equities is a better option when interest rates are on the rise.”


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