Mohsin Bukhari head of investments at Carrington Investments discusses why they are betting on JPM Global Macro in volatile times.
'The tone at the start of this year was very much a continuation from last year, in that global growth was positive, and inflation and interest rates were low. While we believed inflation and interest would gradually rise, we were happy to continue holding equities.
The correction we saw from February through to April was healthy in our view, given that nearly all asset classes delivered strong positive returns from late 2016 to January 2018.
However, the correction we have seen through October is of a different nature, where a more hawkish US Federal Reserve has led to concerns abound growth that has manifested itself in growth-orientated names selling off sharply.
We believe we will see a continuation of the volatility associated with higher interest rates and are in the process of reducing our equity exposure in the areas that are most sensitive.
What has been evident throughout this year is that equity and bond correlations have risen, and so our focus will be on shoring up our exposure to funds with lower degrees of correlation, at the expense of equities.
Finding a fund that performs consistently in the alternatives space is challenging. However, the JP Morgan Global Macro Opportunities fund is something we will be allocating to.
The fund has consistently demonstrated good performance during times of market stress, which we feel is becoming increasingly important as we enter more volatile times.
When markets are rising, the fund has a more mixed return profile, which we are prepared to accept for the diversification benefits during difficult markets.
Having touched on equity and bond correlations, it is worth adding that short duration bonds are less affected in this regard. We already hold short duration bonds and will be looking to add to these via passive instruments.
The technical backdrop is broadly positive for this part of the bond market and so there is less need for an active manager.
We only purchase GBP-denominated funds due to platform constraints, and so our focus has been on GBP paper. Clearly, USD paper has a more attractive yield, but hedging costs make this a less viable option.
Size of MPS
Our model portfolio service provides exposure to six offerings with assets close to £200 million. Five of the models are risk weighted with one portfolio offering a completely unconstrained approach.
Our Balanced portfolio is not actually our most popular portfolio, unlike many of our competitors, with the Cautious and Growth portfolios taking a greater share of the assets.
The Balanced portfolio construction is centred around the equity allocation, which can range between 20% and 60%, as per the IA mixed 20-60% sector. The percentage allocated to equities then dictates the amounts allocated to fixed income and alternatives broadly.
At present, the portfolio has 60% in equities, 20% in fixed income and 20% in alternatives, although, as discussed earlier, the equity weighting will be coming down in favour of a global macro product.'