MAB Quarterly Review Q1 2025 - Growth - 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 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 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.
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