Finally, we remain broadly neutral on Japan. Improving corporate governance and relatively cheap valuations remain supportive, as does the cyclical bias of the market. However, the slow vaccine roll-out and muted economic rebound, have led to the market underperforming recently.
Thematic investing remains a strong feature in our client portfolios. We have had holdings in technology and artificial intelligence for many years and plan to retain them, even though they may suffer near term from a
rotation back into value. Recent results have confirmed the strength of their growth model which should prove resilient to the rather harsher regulatory backdrop going forward.
Climate change is another growth area we are keen on, with governments, companies and investors all focused on the urgent need to address this issue. We also have an allocation to healthcare. Ageing populations and
rapid biotech innovation are attractions, as are cheap valuations.
Infrastructure is another theme we favour as it offers enhanced inflation protection and should benefit from increased government spending. Finally, we have an allocation to frontier markets which are benefiting
from cheap valuations and the global rebound.
We retain a sizeable underweight to fixed income as prospective returns continue to look very limited. The majority of our exposure is to developed market corporate bonds of relatively short maturity. However, we have recently switched a small part of these holdings into emerging market bonds where yields look relatively attractive.
We have only a relatively small holding in conventional government bonds. Not only is there the prospect of negative returns but they are also likely to offer only limited protection in a major risk-off move. However, we do have an allocation to inflation-linked government bonds in our medium to lower risk portfolios, which would otherwise have only limited defence against higher inflation.
Alternatives which aim to provide moderate returns regardless of the moves in bonds or equities continue to look attractive. We already have a holding here and increased our exposure further in June with the allocation funded from fixed income.
Lastly, we have an allocation to gold. The gold price has stabilised around $1800/oz in recent weeks. However, with interest rates set to remain relatively low and inflation concerns likely to persist, we believe it will head higher in the medium term. It should also provide a source of protection in the event of a major market sell-off.
