Thesis Asset Management has reduced its exposure to fixed income across its range of seven model portfolios as uncertainty has increased over the outlook for inflation and interest rates.
Bond prices, which reached record highs in the third quarter of 2016, fell during October and November, and Thesis believes greater fiscal stimulus has the potential to stoke inflation.
Consequently, it has sold out of the Blackrock Overseas Corporate Bond Tracker Fund it held.
“We continue to see significant risks in fixed income, and so reduced allocation to the asset class across all mandates,” said James Nield, office director and investment manager.
“We had briefly considered adding a little to fixed income exposure, but with the election of Donald Trump and rising inflation we reversed course.
“Mounting inflation, in conjunction with higher oil prices and rising wages, means central banks will have less flexibility to keep interest rates low, even where they have the firepower to do so.
“The BlackRock fund has been sold as the overseas currency exposure had served its purpose and the UK credit market now seems more attractive for sterling investors.”
While Thesis sees the potential for increased market volatility, Nield said the investment team had used the available cash to increase exposure to global value stocks, through the UBS FTSE RAFI Developed 1000 Index ETF, as equity markets remained remarkably stable during the last three months.
“2016 marked the start of a rotation from growth into value stocks which we believe will continue this year. The UBS fund is a smart beta ETF and whilst passive in structure the index constituents are weighted using a composite of fundamental factors.
“The output is a portfolio of higher quality value type stocks which we believe complements the portfolios well.”
Elsewhere across its collective model portfolios, Thesis has invested in the Valu-Trac UK Infrastructure Income Fund, reducing its allocation to the Legg Mason IF RARE Global Infrastructure Fund, and selling its position in the Lazard Global Listed Infrastructure Equity Fund in the meantime.
Speaking of the move, Nield said: “Passing its first-year anniversary and more importantly reaching a critical mass in terms of scale, we now include the Valu-Trac fund in our collective models.
“This fund invests predominately in UK listed direct infrastructure management companies like INPP and 3i, which we hold in our securities models. It therefore better aids risk, income and diversification characteristics versus the Lazard and Legg Mason funds which were invested thematically in global infrastructure equities and therefore potentially duplicated equity risk within portfolios.”
Andrew Appleyard/Sophie Robson, MRM
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Director of Marketing and Business Development
Thesis Asset Management plc