Seneca Investment Managers has further reduced its equity holdings as the investment cycle reaches inflection point.
Peter Elston, chief investment officer, Seneca Investment Managers, said: “In line with the road map set out last year to cut equity exposure every few months, we have further reduced equity weights across all funds.
“Labour markets in key global economies are becoming tight, resulting in an acceleration of wages. To stop this feeding through to higher inflation expectations, central banks will continue to tighten monetary policy, either via interest rate hikes or adjustments to quantitative easing policies.
“An increasing number of people in the industry believe the Phillips Curve is dead. We think this is an example of Sir John Templeton’s four most expensive words in the English language, “This time is different”, and that the logical relationship between unemployment and wages is already kicking in.
“The current investment cycle is in its tenth year and getting long in the tooth, so we are sticking with our view that there will be some sort of global economic downturn in 2020 and that we need to reduce risk ahead of this.
“The reduction came from our UK equity holdings, with proceeds going into short-duration high-yield bonds. It seems clear the UK is now in a rising interest rate environment, which will continue as inflation pressures build. Short duration high yield allows us to avoid duration risk while credit risk should not be a problem for much longer.
“Our AUM have risen 80% in the last year and it is our job as fund managers to anticipate such trends before others, even if this means being the lone voice for a period.
“Equity allocations now stand at 33.5% for the LF Seneca Diversified Income Fund, 48.5% for the LF Seneca Diversified Growth Fund and 53.5% for the Seneca Global Income and Growth Trust respectively, having been reduced by 0.5% pts across all funds.”