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Our portfolio positioning
WHAT ARE THE OPPORTUNITIES AHEAD AND HOW DOES THIS IMPACT OUR POSITIONING?
WHAT ARE THE OPPORTUNITIES AHEAD AND HOW DOES THIS IMPACT OUR POSITIONING?
Positive bias towards government bonds
Our portfolios are positioned conservatively, with a modest tilt away from risk assets and a positive bias towards government bonds. Deteriorating macroeconomic data, inverted yield curve and systemic risks are all reasons to be cautious. The outlook for company earnings remains uncertain and recent US bank sector events will see further tightening in credit conditions.
Global healthcare allocation
Against this backdrop, we continue to run an allocation in global healthcare, given the sector’s defensive nature and relative resilience in both recessionary and high interest rate environments.
Cautious sentiment towards equities
We’re also mindful of the cautious sentiment towards equities and the extent to which certain assets may already have discounted a fair amount of bad news. Emerging market regions have reached cheap valuations, exhibiting signs of stabilisation and economic recovery helped by China’s economy re-opening. We added to emerging market equities this year and portfolios show a preference for the region over developed market equities. Furthermore, emerging market equities perform relatively well when the US dollar depreciates, which we see as a long-term trend even if a US recession could lead to a temporary rise for the US dollar.
Move away from Japanese bonds
We added to government bonds as signs of recession grew and the rate hike cycle draws to a close. Fading inflationary pressures saw these bonds provide stability in portfolios during the volatile period in March. Our positioning favours US Treasuries where interest rates are peaking and shies away from Japanese government bonds where there are tail risks associated with a potential shift away from easy monetary policy.
Emerging market debt
Although bond yield levels are more attractive, the additional yield on investment grade credit is modest in light of recessionary risks, and our client portfolios and funds hold some diversification into short-dated emerging market debt. We sold out of our financial credit allocation as the increasing recession risk and monetary tightening is not a supportive environment for high yielding bonds that usually exhibit higher volatility.
2030 net-zero target on track
Coutts continues to progress on its journey toward 2050 net-zero carbon emissions. Currently, average portfolio alignment against this ambition is 58% across our core investment propositions. This is ahead of our 2025 target and well on track to our 2030 target.
