We have taken some profit in equities after the recent strong rally, leaving us with a moderate overweight position. We remain positive on the asset class in view of strong developed economy trends, continued loose monetary policy and a depressed investor sentiment backdrop.
Within equities, we remain overweight in Japan and Europe, where central bank policy is particularly loose and growth has been picking up. However, we have trimmed our position in US equities in order to reduce the underweight position in Asia Pacific, a region likely to benefit most from a deferral of US interest rate rises and a bounce in commodities; and the UK with its large resource sector exposure.
We are underweight in corporate bonds and index-linked gilts in order to fund the equity overweight. We maintain out of benchmark positions in global high yield, a bond market sector that has suffered from energy industry weakness in the US but where fundamentals remain positive. We have further added to our small position in conventional gilts in view of expensive index-linked valuations.
We remain neutral on property. We see a positive market outlook relative to bonds but more upside potential in stocks.
Direction of arrows show change from previous tactical change.
The property allocation within Governed Portfolio 7 has been increased in line with the reduction in the equity allocation as this portfolio has no exposure to fixed interest.