MAB-Quarterly-Review-Q2-2025-Cautious - 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 the 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 to Japanese equities, modestly
overweight to UK equities, funding these overweights with an underweight to Continental European equities.
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 a company just because it is large.
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 asset class, 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.
For those clients with a more modest tolerance
for volatility, we balance our range of regional
equity exposures with other diversifying exposures
within 昀椀xed income (bonds), absolute return
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strategies (designed to deliver positive returns with
little sensitivity to market movements) and other
independent return streams that can be gained in
asset classes like infrastructure (electricity networks,
toll-roads, mobile phone towers etc) and commodities
(oil, gold, agriculture etc). These asset classes are set
up to deliver returns that will likely be below equities
over the long term, but will deliver these returns in a
very different pattern to equities, often helping out
most when equities are in the doldrums. This is exactly
what we have witnessed this year, and we continue to
think they can play a valuable role going forward.
Commodities
Making bold calls on commodity prices is what we
would refer to internally as a “mug’s game”. There are
so many unpredictable moving parts in determining
commodity prices, whether it relates to the global
economy, the weather or geopolitics and trying to
time them in and out is usually a losing strategy. That
said, we do think commodities can play a valuable
role in a well-diversi昀椀ed portfolio and, as a result,
within our mid and lower risk Funds, we maintain a
relatively constant exposure to a diversi昀椀ed pool of
commodities through a Bloomberg Commodity ETF.
This means that we have some exposure whenever
gold or silver prices spike, oil prices rally, or the prices
of various agricultural products rise due to demand
or supply shocks. Over time, commodities have also
provided a degree of in昀氀ation sensitivity. As a result,
you will not 昀椀nd us making a sizeable directional call
on gold or indeed any commodity, but your portfolio
will typically enjoy some exposure to the bene昀椀ts
these assets can provide over time.
