MAB-Quarterly-Review-Q2-2025-Adventurous - Flipbook - Page 8
Market outlook
As a reminder, each of the Multi-Asset Blend Funds has a distinct long-term Strategic Asset Allocation that
is speci昀椀cally formulated based upon each Fund’s stated risk pro昀椀le. The higher the risk pro昀椀le selected, the
more is allocated to equities and less to diversi昀椀ers such as bonds, real assets or absolute return strategies.
Around that strategic asset allocation, we implement tactical tilts when we observe highly attractive return
opportunities where we believe the risk-reward is strongly in our favour. We made no changes to the tactical
positioning over the second quarter and remain meaningfully overweight Japanese equities, modestly
overweight to UK equities, funding these overweights with an underweight to Continental European equities.
Equities
There are multiple reasons why we continue to like Japanese equities and think they could be a strong source
of returns for our Funds in the coming years. Valuations are attractive across the Japanese market, whether
it be in high-growth companies, smaller companies or historically cheap companies. At the same time, we
continue to observe tangible evidence of corporate governance reforms in Japan bene昀椀ting shareholders.
Companies are taking actions that enhance their share prices, and being able to actively overweight such
opportunities in their funds is a signi昀椀cant factor in why our active Japanese equity managers have been
able to deliver returns that are meaningfully in excess of the returns generated through simply buying the
Japanese index. To take advantage of this backdrop, we further shifted our Japanese equity allocation over
the quarter to be even more focused on our active managers.
Within Emerging Markets, the Funds are primarily invested with three active Emerging Market specialists.
We believe passive Emerging Market index funds are littered with large, state-owned enterprises and other
companies that are subject to the whims or desires of their governments or, in some cases, their questionable
quality management teams. We believe navigating around these issues, as well as the rapidly changing
tariff environment, is best undertaken by experienced active managers who, unlike an index, don’t just buy
something because it is big.
Market
The second quarter produced another lesson in the folly of trying to time equity markets in and out. If you
had been fortunate enough to have been pre-warned about the US announcing a whole raft of eye-watering
“reciprocal” tariffs that would send markets into a tailspin, Moody’s downgrading US government bonds,
peace in Ukraine seeming even further away and an escalation in hostilities in the Middle East culminating in
the US bombing Iran’s nuclear facilities then you may have reasonably concluded the best strategy would be
to sell everything and sit in cash. However, global equities ended the quarter up over 5% in Sterling terms,
with many international and emerging markets outperforming the usual “safe haven”, which is the S&P 500
index. An investor who sold in the teeth of the equity market sell-off in early April would have subsequently
missed one of the best market days in equity market history.
The above is why we continually remind ourselves and our clients about the bene昀椀ts of diversi昀椀cation by region
and investment style and the power of “staying invested” through thick and thin. Although we appreciate that
equity markets will always be volatile and subject to short-term shocks, over the medium to long term, they
will typically deliver an attractive, in昀氀ation-beating rate of return.
Currencies
Currency markets are another area where there is a well populated graveyard of managers who have lost
their shirt trying to make bold calls on the direction of currencies. Recall, entering this year, it was the wellheld conventional wisdom that President Trump’s pro-US policy agenda would mean the US Dollar would
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