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7IM portfolios continue decarbonisation journey of SAA

7IM continues to make progress with its plans to decarbonise its Strategic Asset Allocation (SAA). In 2020, it embarked on a programme to reduce carbon emissions of the SAA of all portfolios by 30% over five years (by mid-2026) and has already switched over £300million of assets into lower carbon investments. 7IM plans on implementing phase two of its Strategic Asset Allocation carbon reduction project later this year where it will be focusing on its Corporate Bond assets.

As part of its SAA annual review and update, 7IM has moved its Moderately Cautious AAP and Multi Manager Funds from the IA Mixed Investment 0-35% Shares sector and into the IA Mixed Investment 20-60% Shares sector. While these funds have moved sectors, this is not a departure from the way 7IM runs portfolios – and its investment philosophy and identity remain unchanged. The increase in equity exposure in strategic benchmarks is broadly consistent with levels 7IM have positioned tactically over the last year or so.

Commenting on the SAA update, Matthew Yeates, Deputy Chief Investment Officer at 7IM said:

“Every year we undergo a process to refresh our Strategic Asset Allocations (SAAs), which represent the long-term anchor and starting point for all of our tactical moves in all the 7IM portfolios.

“However, unlike many of the previous years, the period we have been through in 2022 has seen especially heightened volatility in lower risk portfolios such as Cautious and Moderately Cautious. What has been particularly unusual is that the volatility in these portfolios has been driven as much by the bond component of portfolios, as by the equity portion. This has seen the risk of bonds relative to equities increase, due to the inflationary backdrop and rising interest rates.

“We have long been advocates of using alternative assets to protect more cautious portfolios against such environments. Over the last few years, we have been increasing the allocation to alternatives, which have continued to deliver exactly the sort of defensive properties we wanted – and have done so again in 2022, despite equity and bond markets both falling. This continued robust and stable performance of alternatives has given us increased confidence in their diversification properties in strategic portfolios.

“SAA decarbonisation and measuring ESG factor exposure continues to be a key part of our process. We have identified corporate bonds as the next point of focus, having made definitive steps in equity allocations in recent years.”

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