Portfolio Updates: Tactical Asset Allocation (TAA) changes and Manager allocation changes

Following the January Quarterly Asset Allocation meeting, several adjustments have been made to portfolios. The general themes are that we have reduced the underweight to growth assets, trimmed the overweight to Fixed Interest, and increased Cash allocations.

Key Investment Rational for Tactical Changes:

  • There has been a swift change in market expectations around the path of interest rates, especially in the US. The pivot of expectations from “higher for longer” to rate cuts in 2024 has been dramatic.
  • Inflation pressures are easing as we thought would happen, but the easy wins have been made. Moving to the 2% target will be harder.
  • While economic growth has been resilient in the US, it has not been ubiquitous across other major regions. Moving forward, economic growth, at least across developed markets is expected to be sub-trend.
  • However, with potential rate cuts (at least in the US) on the table, we expect less focus on slowing economic growth in 1H24 and more on the likely rebound as financial conditions ease.  
  • Investor sentiment may improve further should the market look through the short-term and focus on how earnings may react to easing financial conditions.
  • The pivot in policy rate expectations also led to a rally in bond yields, driving strong returns from the Fixed Interest asset classes. We see value in now trimming the overweight to the asset class and increasing Cash in anticipation of market volatility.
  • The multi-asset portfolios however remain tactically underweight growth assets given both economic and company earnings growth will first slow, and investors may have gotten ahead of themselves around the timing and extent of rate cuts.