MPS September Newsletter

Returns across most asset classes were quite muted overall – there was weakness in commodities such as oil and copper as growth expectations weakened, and with index-linked gilts as inflation expectations fell; conventional gilts were up about a percent.

Despite the noise and initial volatility in equity markets, strategy returns over the course of the month were marginally positive. Most portfolios across the risk spectrum saw gains of 0.5% or less for the month.

Trading Activity

In August we rebalanced the MPS strategies, moving to a slightly more defensive footing for our lower-risk portfolios, putting some cash into fixed interest to lock in yields, as rates on cash seem set to fall toward the end of the year. Further up the risk spectrum we rebalanced some of the stronger performing regions into weaker areas, trimming UK equities and topping up Europe and Asian and emerging markets.

As usual we have continued to trade our underlying holdings within the Building Block funds.

• • Within our US equity exposure, we increased exposure to Visa following a robust earnings report and the announcement of additional share buybacks. This was financed by taking some profits from S&P Global, which remains part of the allocation but at a reduced weight.
  • Additionally, in Asia, we enhanced our Japanese exposure by initiating a position in Comgest Japan, which concentrates on high-quality growth companies that capitalise on crucial themes like digitisation and automation in an economy undergoing a regime shift.
  • We also modified our industrials exposure within both the UK and European Building blocks. In the UK, we tilted slightly more defensively by reducing our position in industrial equipment provider Ashtead to reallocate funds towards Unilever. Equipment rental is by nature a more cyclical business model; one that is more exposed to a potential economic slowdown compared to Unilever, whose suite of consumer goods brands such as Persil, Hellmans and Dove benefit from more resilient consumer demand.

Outlook

From where we stand today, with inflation falling and labour markets still relatively strong, the soft landing is still on the cards – a benign environment for our MPS client portfolios across the risk spectrum. We do need to see some interest rate cuts soon to avoid the economy cooling too far – labour market data out of the US suggest that cooling is well underway. Within that environment we are happy to maintain our combined overweight to equities and bonds at the expense of alternatives and cash, leaning towards higher-quality companies across all sectors.