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The Multi-Asset Process

October 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.
  • Equities and bonds decline for third consecutive month on continuing interest rate concerns and geopolitical turmoil
  • US treasury yields reach 16-year high; European Central Bank pauses after 10 rate hikes
  • Exposure mix to Japanese equities is changed in Explorer and Blended ranges

Global equities and bonds drifted lower for a third consecutive month on continuing concerns over higher-for-longer interest rates and conflict in the Middle East.

Government bonds saw some flight to safety flows because of the fighting between Israel and Hamas but this dissipated. Yields on US Treasuries reached a 16-year high as questions were raised over the US’ credit quality and the extent of its debt issuance.

We continue to be broadly neutral on fixed income. Yields should form a range around current levels but, as ever, their paths are unlikely to be linear. We retain exposure to bonds for their long-term diversification attributes versus equities, some level of inflation protection and latterly, substantial income. Over Q3, fixed income generally contributed more to our returns, with our active managers playing a key role. For example, leading contributors in the corporate bond sector included Royal London Corporate Bond for our portfolios and Man GLG Sterling Corporate Bond in our active funds. The former’s stock selection has contributed to consistently delivering alpha versus its benchmark index and IA sector, while the latter’s edge lies in its bottom-up focus on smaller issuers and the team’s ability to extract alpha from undervalued credits that are overlooked by larger scale investors. 

US equities breach correction level

The S&P 500 officially corrected in October, breaching a level more than 10% below its high earlier in the year.1 The enthusiasm for artificial intelligence that drove the market earlier this year was forgotten and replaced by jitters over interest rates, a mediocre reporting season and geopolitical turmoils.

Uncertainty over the future trajectory of interest rates was exacerbated by surprisingly strong Q3 GDP data showing annualised growth of 4.9% and significantly stronger jobs data.2 Headline inflation also ticked up from 5.3% in August to 5.4% in September, while the core rate remained at 4%.3 There were some high-profile earnings disappointments, with Alphabet, Google’s parent, missing revenue forecasts in cloud computing sales. Microsoft beat earnings expectations but saw little share price uplift.4

In our last asset allocation rebalancing, we slightly increased our exposure to US equities in our risk level eight models. Funds we use here include AB American Growth, Artemis US Smaller Companies, Fidelity Index US, JPM US Equity Income and JPM US Small Cap Growth. Our view on the US equity market remains neutral but we are mindful of the strong run a small number of AI-related names have experienced in recent months. Clearly the recent correction will remove some of the valuation excesses from the market. 

Neutral on European equities

After raising rates consecutively to an all-time high in September, the European Central Bank held them in October, ending an unprecedented run of 10 consecutive rate hikes. The need to tackle inflation was being weighed against rising concerns over eurozone growth.5 Headline inflation has dropped from a peak of 10.6% in 2022 to 2.9% in October, significantly below the 4.3% in September and the lowest since July 2021.6 Data also showed that the eurozone economy shrank slightly by 0.1% in the three months to September. A contraction in Germany and Austria offset growth in Spain and France. Core inflation was 4.2%, down from 4.5% in September.7 We are neutral on the outlook for European equities.

Positive on UK outlook

In the UK, headline inflation remained at 6.7% annualised in September in line with August, increasing the likelihood that the Bank of England would hold the base rate for the second month running at its next monetary policy meeting in November. The chances of this were reinforced by latest data for England and Wales showing corporate insolvencies were 6,208, or up 10% on an annual basis, raising the possibility of a recession in the UK.7

From a stock market perspective, we are positive on the outlook for the UK, which has been overlooked by international investors for some years and we do not believe it will require much of a catalyst to release that value. One of the leading equity contributors to our fund and portfolio performances in Q3 was the JO Hambro UK Dynamic. We deem this fund to be ‘value-lite’ because it has strict disciplines around the types of businesses (dividend payers only) and allocation that prevents the resultant portfolio becoming concentrated in value traps or companies reliant on external catalysts for improvement. It should outperform in a risk-on market and, with a view to creating a balanced overall exposure to the UK, should be blended with a higher quality growth strategy.

Japanese equity allocation changed

In Asia, Japan took a significant step towards unwinding its historic monetary easing policy by ending its seven-year position of capping long-term interest rates at 1%. High yields on US treasuries have put pressure on Japanese government bonds and the yen. Weakness in the yen has exacerbated Japan’s inflation rate, which reached 4.2% in September.7


We continue to monitor Japan closely to see whether its strong rally this year is over now, or whether it has scope for further outperformance versus the rest of the developed world. In the meantime, we have trimmed our exposure to Japanese equities in our highest risk eight level models, where exposure includes Baillie Gifford Japanese, Fidelity Index Japan, M&G Japan Smaller Companies and Man GLG Japan CoreAlpha Professional.


We have also changed our Japanese equity allocation in the Explorer and Blended ranges. We have sold our allocation to Man GLG Japan and moved our M&G exposure from small cap only to an all-cap strategy managed by the same team. We believe the new blend gives us a better balance of risks, market capitalisation and sector exposure in the region.

Elsewhere in Asia the Evergrande saga continued, with a Hong Kong judge giving the indebted property developer a last chance to formulate a revised restructuring plan for its US$300 billion debts or face a potential liquidation order in December. Evergrande is seen by investors as a potential flashpoint for markets because of the significance of China’s property sector, which accounts for around a quarter of the country’s economy.8

A peak in the cycle?

As much as central banks are warning interest rates will have to stay elevated for some time, investors are increasingly confident that the current rate cycle may have reached its peak.9 They still have to tread a fine line between their fight against inflation and tipping economies into a significant recession, but we are encouraged to see inflation generally steadying or falling and we still believe any downturn is likely to be shallow. Uncertainty still pervades markets, and investors’ sentiment remains fickle, but it could be that it means there is still a window of opportunity to put in place investments for the long term.


1Source: FT.com, 27 October 2023


2Source: FT.com, 6 October 2023


3Source: FT.com. 13 October 2023/Bureau of Labor Statistics


4Source: FT.com, 27 October 2023


5Source: FT.com, 26 October 2023


6Source: FT.com, 31 October 2023/Eurostat


7Source: FT.com, 31 October 2023


8Source: FT.com, 30 October 2023


9Source: FT.com, 2 November 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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