By Bordier UK

It may seem an age away today, but as we headed into 2020 our baseline scenario was reasonably favourable: one of slow and steady growth, linked to robust labour markets and some carry-over from 2019’s policy easing. Furthermore, the prospect of sustained low inflation meant policymakers could focus on the prevention of recession by additional, albeit modest, easing.

In terms of our overall allocation to equities, we viewed the UK equity market as offering a longer-term buying opportunity based around its relative value and yield compared with many international markets, and encouraging signs around the Brexit process following the UK election in December. The easing of US-China trade war tensions at the end of 2019 also provided some encouragement.

By February of this year, the spread of COVID-19 and the resulting pandemic in March consigned our earlier optimism to history. Economies suffered their largest contraction since the Second World War and in March we witnessed the biggest correction in equity markets since 1987.

As the dust settled and we began to digest the implications for portfolios, it was clear from a wide range of economic forecasts that the UK economy would be slow to recover from the downturn.

We decided it was time for swift and decisive action and we repositioned the equity exposure within our strategies (whilst ensuring they continue to map to the relevant Dynamic Planner risk boundaries). In doing so, we reduced our UK weightings and reallocated the monies to the US and Asia.

Having taken this action it is pleasing to note that relative returns have been strong, even with fluctuations in the strength of the US dollar relative to sterling, which we believe is more about the dollar being weaker rather than a fundamental change in the outlook for the pound. We do not expect this sterling strength to continue against a background of Brexit without a meaningful deal and mutterings from the Bank of England about the possibility of negative interest rates in the UK and we will likely see further short-term fluctuations in the pound over the coming months.

By adding to the US market we have increased exposure to areas of the economy, such as increasing digitalisation, which are likely to prosper over the next few years. We took the opportunity to increase our allocation further, specifically targeting the technology sector, following the recent sell-off in the US prompted by a fall in the share prices of technology firms.

In Asia, we have exposure to countries that are recovering well from the early imposition of lockdown restrictions together with the tailwind of faster economic growth than many western markets over the next 3-5 years.

Our fixed income exposure protected well during the dark months of February and March and the mix of government, investment grade corporate and index-linked bonds served portfolios well. It was a similar story with our alternative investments.

Our portfolios remain very well diversified in terms of style, region and asset class and importantly, we do not have any exposure to either highly illiquid investments, such as commercial property, or esoteric investments, such as aircraft leasing where capital values have been permanently impaired.

This is definitely a time for active managers to shine as unlike passive funds they can position their investments to take advantage of the likely structural changes we will see going forward including de-globalisation, an increased emphasis on the digital economy and larger government deficits.

The shape of the world economy has altered in the past few months, and we believe the steps we have taken (including our recent allocation to US tech), and the pragmatic actions of underlying managers mean that our strategies are well placed to capture both the opportunities and cope with the headwinds ahead.

For further information on our positioning or strategies, including our new Hybrid Passive Risk Targeted Managed Service, please call us on 020 7667 6600 or email