2021 ICM P1 Portfolios and Performance

Key Decisions

As before, below are the condensed key decisions and rationales.

• Introduction of the TM P1 Sustainable World into the Hybrid portfolios
• Reduction of Credit exposure in favour of cash
  1. Credit spreads have now completely normalised leaving little in the way of capital upside (Fixed Income)
  2. Government bond yields at negative rates out to 5 years so short dated gilts or money market funds make little sense (Fixed Income)
  3. This will reduce portfolio volatility
• Maintaining geographic positioning within equities
  1. We do not currently have any extreme positioning within international equities
  2. US, Europe marginally underweight – High valuations in the US, heightened risks in the Eurozone
  3. UK, Asia/EM overweight – primarily on valuation

Portfolio Review

The portfolios have significantly outperformed over the fourth quarter, led by the Hybrid portfolios. The rally in markets that followed the news of vaccine successes in November drove the strong performances, on both a relative and absolute basis. The portfolios have carried an overweight to the UK and underweight to the US, which changed from a headwind to a tailwind over the quarter. In addition, within the Hybrid portfolios, there has been a deliberate balance between “value” and “growth” manager styles leading to an exposure to a number of value funds that have performed exceptionally well over the quarter. Elsewhere, the fixed income exposures, made up predominately of Credit, provided a further boost as spreads narrowed and corporate bonds outperformed government issues.

The Ethical portfolios have slightly lagged their Hybrid equivalents, although they remain well ahead of their benchmarks over the short and longer term. Ethical funds are typically more exposed to the “growth” areas of the market, which on a relative basis have not performed as well, particularly in November.

All of the passive portfolios outperformed their respective benchmarks over the quarter, although marginally lagging their hybrid equivalents.

The upside/downside capture metrics have improved in aggregate.. This has been predominately down to the hybrid growth portfolios which have had a particularly strong November, as well as holding up well in the September and October months which saw negative returns. We continue to use both the beta measure and simple calculation; however, these deliver broadly similar results, although the extreme volatility has resulted in some divergence in the measures.