MAB Quarterly Review Q1 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 third quarter and remain meaningfully overweight Japanese equities and very modestly
overweight to UK equities, funding these overweights with an underweight to Continental European equities.
Equities
Despite geopolitical concerns, elevated interest
rates and economic uncertainties created by the
implementation of wide-ranging US tariffs, global
equity markets are seemingly heading for their third
calendar year of attractive double-digit returns. How
long this will continue at this rate is extremely dif昀椀cult
to predict but what we can say is that pretty much
every regional equity market is currently trading at
a valuation multiple that is materially above their
long-term averages. This means that an investor
buying those equity markets passively via an index
fund is paying way more per Pound of pro昀椀ts being
generated by the underlying companies in that market
than has been the case on average historically. In the
US, buying that same Pound of underlying corporate
pro昀椀ts has rarely been more expensive.
This doesn’t mean you still can’t make money from
equities over time, but it does mean that in constructing
your Fund we are as acutely focused as ever on
making sure we have lots of diversifying exposures
that can hopefully be helpful if equity markets take
a pause or even suffer a more pronounced, albeit
temporary, decline.
Within our equity market exposure, you will be
aware that we diversify your Fund across six
regional equity buckets namely US equities, Global
equities, UK equities, Continental European equities,
Japanese equities and Emerging Market equities. Our
allocations to each of these regions are also more
broadly spread than many of our peers who tend to
concentrate more on US equities simply because that
market represents more than 70% of the MSCI World
Index. We don’t consider that level of concentration
to be prudent if you are trying to construct an
Pg 7
appropriately diversi昀椀ed portfolio with a broad range
of future potential return generators.
As noted above, currently our largest tactical
overweight exposure is to Japanese equities. This is
because, not only are valuations lower than in the US,
but there are wide-ranging corporate governance
reforms taking place that are leading to companies
being managed more for their shareholders, helping
these companies generate an improvement in future
pro昀椀ts through company-speci昀椀c factors, rather than
simply relying on overall equity market performance.
To some extent, each of our three active managers we
utilise in Japan have been able to bene昀椀t from that
theme through careful company selection.
Within our regional equity components, we also
ensure we have diversi昀椀cation by investment style.
This means not only using both active and passive
investment strategies to varying degrees across
the portfolio but also, within asset classes, using a
range of different investment styles. This is because
we recognise that different investment styles work
in different investment environments and those
environments can change relatively quickly and
without anyone ringing a bell.
One notable feature of equity markets this year has
been the signi昀椀cant underperformance of a style
known as “Quality”. This style is represented through
managers who focus on buying quality companies,
typically evidenced by businesses that have a proven
record of being able to generate stable, growing pro昀椀ts
through good and bad economic environments,
often reinvesting some of those pro昀椀ts back into their
businesses so they get steadily stronger over time.
