Model | Previous OCF | OCF following rebalance | Change |
---|---|---|---|
Passive 1 | 0.16% | 0.14% | -0.02% |
Passive 2 | 0.16% | 0.13% | -0.03% |
Passive 3 | 0.15% | 0.13% | -0.02% |
Passive 4 | 0.13% | 0.11% | -0.02% |
Passive 5 | 0.11% | 0.10% | -0.01% |
Asset allocation
5 min read 15 Aug 24
We’ve changed our Strategic Asset Allocation and switched some passive funds to less expensive share classes. These changes were reflected in a rebalance instructed on 15 August 2024. The ongoing charges figures (OCFs) for the portfolios have fallen by between 0.01% to 0.08% pa, depending on the investment approach and risk profile.
The Strategic Asset Allocation (SAA) is the long-term target allocations across the various asset classes in the models. The amount in equities, bonds and alternatives hasn’t changed. Within equities we increased US equities and reduced Europe, Asia and emerging markets equities. For bonds, we reduced the allocation to US corporate bonds and emerging market bonds and increased the allocation to government bonds.
Our tactical asset allocation, which is our shorter-term views, remains the same; we continue to have more in developed market equities and less in bonds.
More in US equities and less in other regions: We have increased the allocation to US equities in the Passive and Hybrid ranges. We continue to have less US equity than most of our competitors as company valuations reflect a rosy outlook for long-term growth in earnings. However, given the rise in the allocation to the US within global equities over the last few years and the unique companies within it, the exposure needed to be increased to maintain a similar relative view.
Europe, Asia and emerging market equities were reduced to increase the US. The portfolios continue to have higher allocations to regions such as Japan, Europe and Asia than peers as we see better future stock market growth coming from these regions.
Less in US corporate bonds and more in government bonds: The amount investors get paid to invest in corporate bonds over government bonds has declined to low levels compared to history. In contrast, the yields of government bonds are attractive.
Cheaper share classes: We reduced the OCFs of the models by switching to cheaper share classes for some passive funds: L&G Global Infrastructure fund, L&G All Stocks Gilt Index fund, L&G EM Govt Bond US$ Index fund and L&G EM Govt Bond Local Currency Index fund.
UK corporate bond passive fund: We changed the UK corporate bond index tracker to a fund that tracks a broader corporate bond index which we think will perform better over the long-term (iShares Corporate Bond Index UK).
Reducing US dollar exposure: The Passive models have more exposure to the US dollar. We see more positive signs for sterling due to better economic data and less political instability. We have reduced the US dollar exposure by hedging some US equities.
Model | Previous OCF | OCF following rebalance | Change |
---|---|---|---|
Passive 1 | 0.16% | 0.14% | -0.02% |
Passive 2 | 0.16% | 0.13% | -0.03% |
Passive 3 | 0.15% | 0.13% | -0.02% |
Passive 4 | 0.13% | 0.11% | -0.02% |
Passive 5 | 0.11% | 0.10% | -0.01% |
Model | Previous OCF | OCF following rebalance | Change |
---|---|---|---|
Hybrid 1 | 0.36% | 0.32% | -0.04% |
Hybrid 2 | 0.39% | 0.34% | -0.05% |
Hybrid 3 | 0.41% | 0.36% | -0.05% |
Hybrid 4 | 0.44% | 0.38% | -0.06% |
Hybrid 5 | 0.46% | 0.38% | -0.08% |
Model | Previous OCF | OCF following rebalance | Change |
---|---|---|---|
Global ESG Themes 1 | 0.48% | 0.46% | -0.02% |
Global ESG Themes 2 | 0.49% | 0.47% | -0.02% |
Global ESG Themes 3 | 0.50% | 0.48% | -0.02% |
Global ESG Themes 4 | 0.50% | 0.48% | -0.02% |
Global ESG Themes 5 | 0.51% | 0.49% | -0.02% |
Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.