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The Multi-Asset Process

August 2023 Market Review

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
  • Global equity and bond markets pause for breath in August over interest rate worries
  • MA team has cut fixed income target allocations and duration this year
  • ECB president says a new playbook is needed for today’s world

Global financial markets corrected in August, pausing for breath in what has been a double-digit upward trend year to date for most of them. Investors’ worries rose once again over inflation and higher interest rates, which was particularly detrimental for US and European government bonds. Overall fixed income target allocations have been reduced this year in all but our two highest risk levels, while the duration – or interest rate sensitivity – of our UK gilts exposure has been cut over the last year to reduce risk.

The US’s Federal Reserve stressed again the upside risks to inflation, both in its latest minutes and in comments from chairman Jay Powell at the Jackson Hole Symposium. Other leading central bankers also warned it was too early to declare victory over inflation, raising the prospect of more monetary tightening.1

The comments wrong-footed some investors who believed that interest rates had peaked and so have returned to the fixed income markets this year to lock in higher yields. As investors adjusted their expectations for interest rate policies in the US and Europe, a sell-off in bonds pushed up yields on US treasuries, gilts and European government bonds to multi-year highs.1

The market moves were impactful for our lower risk funds and portfolios, which hold higher exposures to fixed income, but target exposure to global government bonds, which includes US treasuries, is just 2%. Our higher risk-profile solutions have materially less exposure to fixed income. Our fixed income exposure includes both short- and medium-duration gilts and investment and sub-investment grade credit.

Our overall view on fixed income is largely neutral, although we have raised our ranking on investment grade corporate bonds from a neutral three to a four in our Q3 Tactical Asset Allocation review. We believe that nominal yields are good and credit risks are low: 120-130 basis points over sovereigns looks to be an attractive trade and worthy of an overweight position in our funds and portfolios. In nominal terms, yields of 500bps-plus are now available on debt issued by very high-quality businesses.

Japan and US equities see shallowest declines

Global equities have recorded double digit gains so far this year, contributing positively to performances in all our Multi-Asset solutions, but especially those with higher risk profiles. However, equity markets fell single digits across the board in August, with Japan and the US seeing the shallowest declines and emerging markets and Asia ex Japan seeing the steepest. The underlying tone of markets has mellowed on stubborn inflationary pressures and worries about China’s economy.

The positive performances have been led by the US technology giants, driven by surging interest in Artificial Intelligence (AI). Nvidia stunned markets with Q2 earnings results that smashed forecasts, becoming the highlight of an earnings season that saw S&P 500 companies exceed expectations but still receive a lukewarm response from investors.

We have exposure to the AI theme through US growth managers and index funds, especially in our higher risk solutions in which target exposure to US equities can be as high as 35%, but we remain careful. We maintain that value can still be found in the US beneath the technology behemoths and the US economy remains in relatively solid shape. While long-term earnings could be solid, we believe that active exposure is still warranted, with rotation of styles being a risk to market cap-weighted indices.

The inflation news has been better in the US than in Europe. Although US economic data has been generally stronger than expected, raising fears of more rate hikes being needed, the latest figure for headline annual US inflation was 3.2% in July2, slightly up from 3.0% in June, while core inflation remained at 4.7%, the lowest level since October 2021.3

Inflation still a challenge in Europe

Across the Atlantic, Eurozone headline annual inflation stayed at 5.3% in August, but core inflation did fall slightly from 5.5% in July to 5.3%.4 However, the latter figure remains significantly higher than the European Central Bank’s 2% target.

In the UK, headline inflation continues to fall, but slower than elsewhere. Lower energy costs helped to push consumer price rises from 7.9% in June to 6.8% in July.5 But core inflation remained at an annual 6.9% for July. The Bank of England raised the base rate by yet another 25 basis points in August to a 15-year high of 5.25% and markets expect another such increase in September.

The UK stock market has underperformed year to date, after having been the leader in 2022, but we believe it will turn versus the other majors. The UK has significant exposure to the energy and financial sectors. While the former has weakened this year from the highs it saw in 2022, we think that the latter is poised to do well and should benefit from a more forgiving yield curve and higher prevailing yields than we have seen for many years. It is hard to predict when the UK will turn, but we do not believe that it will require a major catalyst.

A new playbook is needed

Although the warnings over inflation by central bankers was a key takeaway at Jackson Hole, a more profound discussion was raised by Christine Lagarde, president of the European central bank, who stressed that the world was at an inflection point characterised by tighter labour markets, the transition to a greener economy and the breakdown of globalisation into competing blocs. She stressed that a new playbook was needed for today’s world.5

We also believe the world today presents many challenges and opportunities for investors, which is why we introduced a new Strategic Asset Allocation (SAA) earlier this year. We want an SAA for the next decade, in which market drivers will differ from those of the last 10 years, and greater flexibility and access to more asset classes will be required for successful investing.

1Source: FT.com, 21 August 2023


2Source: US Bureau of Labour Statistics, 10 August 2023


3Source: Financial Times, 10 August 2023


4Source: Eurostat, 18 August 2023


5Source: UK Office for National Statistics, 16 August 2023

Understand common financial words and terms See our glossary

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Funds and Model Portfolios managed by the Multi-Asset Team may be exposed to the following risks: 

■ Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value. The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay;
■Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss;
■ Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected;
■Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result;
■ Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time;
■ Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies;
■ Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates.
■ Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices.
■ Any performance shown in respect of the Model Portfolios are periodically restructured and/or rebalanced. Actual returns may vary from the model returns.

The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

John Husselbee
John Husselbee
John Husselbee has 38 years’ experience managing multi-asset, multi-manager funds and portfolios. Before joining Liontrust in 2013, John was co-founder and CIO of North Investment Partners and Director of Multi-Manager Investments at Henderson Global Investors.

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