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Changes during Q1 essentially continued to pursue two related themes \u2013 reducing the extent of the portfolios\u2019 overweight position in \u2018growth\u2019 companies vis-\u00e0-vis \u2018value\u2019 and increasing exposure to investments that should better protect them from rising inflation. They are related because governments are intent on fostering a strong economic recovery.<\/p>\n
The changes in Q1 picked up where Q4 left off \u2013 that of rebalancing somewhat the extent of the portfolios\u2019 overweight position in \u2018growth\u2019 companies, given the disparity in valuations and the economic backdrop. The portfolios continue to pursue a growth mandate for reasons highlighted in a previous column (\u2018Remaining focused on the long-term\u2019, 7 August 2020). There is no shortage of entrepreneurial managements and companies which are embracing both existing and emerging trends and technologies. These will continue to provide plentiful opportunities for the patient investor.<\/p>\n
However, the increasingly evident determination of governments to engineer a strong economic recovery \u2013 the UK Budget and President Biden\u2019s spending and infrastructure packages being recent examples \u2013 reinforce the rationale of increasing exposure to those unfashionable companies which should disproportionately benefit. Such companies need not be poor quality. But they tend to have lower ratings in part because their prospects are more closely tied to the economy \u2013 and economies have tended to struggle in recent years.<\/p>\n
Within this modest rebalancing, exposure to the UK has been increased as the market looks good value relative to others on a range of valuation metrics. Economic prospects remain encouraging with an EU trade secured, numerous trade deals signed since, and application made to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which offers tremendous potential. Meanwhile, the economy remains attractive to inward investment and the market has meaningful exposure to such \u2018value\u2019 sectors as the banks, oil companies, pharmaceuticals and miners.<\/p>\n
But the Q1 changes have also continued to recognise the risk of rising inflation. Last month\u2019s column (\u2018Preparing for inflation\u2019, 12 March 2021) again highlighted the investment implications. The impact of the pandemic on globalisation, the gradual but meaningful change in our demographics, likely shifts in the balance between capital and labour, the scale of the fiscal stimuli, the likelihood the new money will this time reach the real economy and, perhaps above all, the political realisation that inflation is now necessary to help deal with the debt, being some of the reasons weighing in inflation\u2019s favour.<\/p>\n","protected":false},"excerpt":{"rendered":"
Changes during Q1 essentially continued to pursue two related themes \u2013 reducing the extent of the portfolios\u2019 overweight position in \u2018growth\u2019 companies vis-\u00e0-vis \u2018value\u2019 and increasing exposure to investments that […]<\/p>\n","protected":false},"author":1,"featured_media":548,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-225","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fair-value-and-target-market-assessment"],"acf":[],"yoast_head":"\n