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BlackRock have adjusted the asset allocation of their GBP portfolio. As a result, we will reflect these changes immediately in the 1OAK MA asset allocation.

The combination of global recovery and continued fiscal and monetary support means that BlackRock remains cautiously optimistic. In particular, they highlight the appeal of UK equity where high vaccination rates, low mortality and attractive valuations support a positive outlook. As a result, they increase the exposure to equities across most of the models.

BlackRock add to UK and Emerging Market equity while reducing exposure to Japanese equity. Property reappears in the high-risk model.

Within the non-equity sleeve, they rotate from UK Gilts to US Treasuries and short-dated TIPS. We note that there is a significant cut in the exposure to UK Inflation Linked Gilts. These move inversely to the real yield, which has dropped to very low levels. Gold remains unchanged.

MA80 Changes

Figure 1 below shows the recent changes to MA80 and the new allocation to each asset class across the whole range of assets used by BlackRock

Figure 1: MA80 changes to asset class exposure.

chart portfolio adjustment

Overall there is a 2% reduction in allocation to bonds which is re-allocated equally to alternatives (property) and equity. The equity allocation is now 82.5%, slightly above the benchmark level.

Figure 2 shows the change and the new allocation for each asset in the fund.

Figure 2: Changes and new allocation for 1OAK MA80

chart portfolio adjustment

  • The increased allocation to UK equity is the single most significant increase in exposure to any asset and is large in proportion to the previous exposure to this asset class.
  • The reduction to European and US Equity is relatively small compared to the size of the allocation.
  • The reduction in exposure to Index Linked Gilts and Japanese equity have considerably reduced the exposure to both assets.
  • Long-dated US Treasuries are used as a form of diversification and protection if equity values fall. So the increase in US Treasury exposure can be seen as mitigating the risk from the overall increase in equity exposure.

Conclusions

The changes to the asset allocation that we receive from BlackRock have increased the exposure to risk assets in line with their broadly optimistic outlook. The increased allocation to UK equity is the most significant change. Reduced exposure to inflation-linked bonds looks to be well timed given the very low levels of inflation-adjusted yields.

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