Andrew Johnston

We are neutral on equities, where we see risks as well as opportunities within the asset class. We have reduced exposure to US equities on (over) valuation concerns and concentration risks; the top 10 largest companies make up nearly 40% of the main US stock market. We have increased exposure to emerging markets where valuations are more attractive and the earnings outlook positive, as well as listed infrastructure, a defensive sector which has tended to perform well when interest rates have peaked.

We hold a lower risk (minimum volatility) equity strategy, in case recession risks increase. We are overweight value, which helps diversify exposure away from the largest US companies and where valuations are compelling; at these levels value has historically gone on to outperform over the next five years. Given the rise in bond yields, we believe the case for bonds is more attractive now than it has been for years. Our preference remains for high quality bonds, a reduced sensitivity to interest rates and increased exposure to inflation linked bonds, given the uncertain path ahead for inflation.

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