The past three years have been challenging for financial markets and the global economy. Covid-19 lockdowns and Russia’s invasion of Ukraine were followed by double-digit inflation and the start of an aggressive interest rate hiking cycle. We also witnessed the collapse of several US regional banks, an artificial intelligence-fuelled rally in equities, and have just seen an explosion of violence in the Middle East.
Monitoring the market
Three years ago, governments were trying to reinvigorate their economies following the Covid-19 outbreak. We believed this unprecedented monetary and fiscal stimulus would provide a strong backdrop for risk assets, and therefore had a 5% overweight to equities. We were also tilted towards growth-oriented fund managers, which benefited significantly from the low interest rate environment of the time.
During 2021, as countries began a phased exit from lockdown, inflation started to rise sharply. This was due to supply chain disruptions, pent-up demand, and accumulated savings during the pandemic. We anticipated that interest rates would rise and negatively impact long-dated bonds. We therefore shifted the funds’ Treasury Inflation-Protected Securities (TIPS) exposure away from longer-dated maturities. We also added Colchester Global Bonds to diversify our fixed income exposure away from developed market sovereigns. Central banks outside of the US Federal Reserve, European Central Bank and Bank of England had already begun raising interest rates, which meant higher yields were on offer elsewhere.
Towards the end of 2021, we anticipated that we would soon enter a ‘late cycle’ economic environment – a period typically marked by decelerating economic growth. We believed this wouldn’t be as supportive for equities, so we began to reduce our equity exposure. The equity overweight was reduced further to 2% when stock markets rallied following Russia’s invasion of Ukraine. We also neutralised our tilt towards growth, which had begun to underperform. In July 2022, we moved to a modest 0.5% underweight to equities, reflecting the backdrop of high inflation, rising interest rates, and pressure on consumer spending.
Late 2022 saw the pensions liability-driven investment (LDI) crisis in the UK, which was triggered by former prime minister Liz Truss’ infamous mini-budget. We acted nimbly to take advantage of the sell-off in UK government bonds. It marked the beginning of a gradual reduction of our underweight to bonds, from 4% down to 0.5% in September 2023.
Increased choice and diversification
It has certainly been a testing time for our Voyager Funds, which celebrated their three-year anniversary in October. Yet thanks to our ability to anticipate market movements and keep costs low, the Voyager Funds have weathered the storm.
As well as responding to the changing market and economic backdrop, we’ve also been nimble in offering greater choice for advisers. In autumn 2021, we launched Voyager Max 100% Equity in response to adviser demand for a fund at the highest end of the risk spectrum. This increased our suite of funds to six. The other five funds have maximum equity exposures ranging from 40% to 90%.
In February 2022, we launched the MI Select Managers (MISM) Alternatives Fund. This was a new addition to our range of manager-of-manager MISM Funds, which we introduced in 2018 to drive down the cost of investing. The MISM Funds are employed in our Managed Portfolio Service (MPS), Voyager Funds and discretionary portfolios, alongside a selection of single manager funds. Adding an alternatives fund enabled us to introduce new investment strategies – including gold exchange-traded commodities and infrastructure investment trusts – which led to a significant increase in the investment options available to clients.
