Exploring the potential benefits of active management and how we have adjusted our CT Universal MAP portfolios in a fast-moving world
Active
If you’d been living under a rock year-to-date and had just checked in on markets, you could be forgiven for thinking not much had gone on. The reality couldn’t be more different! We’ve seen significant swings in valuations triggered first by worries over US dominance in the AI space following the release of China’s DeepSeek large language model, and then further volatility and a sharp sell-off in equities – especially in the US – following President Trump’s ‘Liberation Day’ announcements. Since then, we have seen strong performance from European shares and a recovery in US equities after a pause in the implementation of tariffs and a de-escalation of trade tensions between the US and China. Moves have been rapid, and we have worked to best position portfolios, including through adjustments to our fixed income exposures. For example, we swiftly reversed an underweight to government bonds following a rise in US Treasury yields. At the other end of the credit spectrum, we had been neutral on high yield but have taken the opportunity to add to positions given the widening in credit spreads that we saw during the market volatility in April felt unjustified against solid fundamentals.
Considered
Many of the market moves this year have been in response to policy announcements from the US administration. But other geopolitical factors have played a big role, such as Europe moving to step-up spending in areas like defence and infrastructure, a shift enabled in Germany by an easing of the debt brake. In such news flow-driven markets it could be tempting to rapidly reposition portfolios to reflect such announcements. Given the sharp policy reversals we have seen in recent weeks, however, such an approach could quickly lead to being on the wrong side of trades. In our view it is better to take a more considered approach – positioning portfolios to tap into themes and shifts where the longer-term outlook remains more certain and our conviction higher. Our Chief Investment Officer, William Davies, discussed this in a recent video.
Tactical
The right blend of assets can be a powerful tool in delivering investment outcomes aligned with long-term objectives. This strategic approach to asset allocation can be enhanced through an actively managed tactical approach designed to take advantage of shorter-term themes and opportunities, as well as taking steps to better preserve capital in more challenging periods. During sharp downward corrections in US equities earlier this year, for example, we took the opportunity to increase weightings at what looked to be attractive valuations. Closer to home we have added to our European exposure on the view that fiscal easing bolsters the region’s growth prospects.
Insight
Information advantage matters when actively investing, and the importance of insight generated through intense research efforts shouldn’t be underestimated. That insight can be applied in many ways in an actively managed multi-asset portfolio. It could be asset allocation decisions driven by analysis of macro-economic data and trends together with valuation differentials between asset classes and geographies. At the stock level it’s about picking companies with real potential, often quality businesses with strong competitive advantages. In conditions such as we have seen this year, it may be sensible to emphasise domestically orientated businesses that are less exposed to the uncertainties of global trade, and/or companies enjoying strong pricing power that are able to pass off higher costs to their customer base.
Value
Investment guru Warren Buffet once commented that ‘Price is what you pay. Value is what you get’ – a statement further underlining a potential benefit of active management. Assessing value as part of any investment decision is a key determinant of its long-term success. It is one thing to identify a compelling investment case, but if valuation isn’t considered then it could be that any future potential may already be reflected in the price, thus offering little room for upside. Contrast this with a passive approach, investing at the prevailing ‘price’ purely as a function of a company’s index weighting.
Equities
Shares can play an important role in any diversified portfolio, providing growth (and income) potential. This year we have seen investors rotate between ‘risk-on’ to ‘risk-off’ stances as news flows fluctuate. Within our equity components we have made some adjustments to geographic exposures but on the whole, we are cautiously optimistic on the asset class. The overall economic backdrop remains relatively supportive and company borrowing levels restrained. For now, we maintain a modest overweight stance relative to our respective benchmarks and could use any future weakness as an opportunity to selectively increase weightings.
