Balanced ETF portfolios GBP Q2 2021 commentary

Balanced ETF portfolios GBP Q2 2021 commentary

SaxoSelect Commentaries
Saxo Markets

Asset classesStocks (developed and emerging equity), bonds, non-traditional
InstrumentsETFs
Investment styleMacro, diversified investment focus
Quarterly return (net of fees) 
Defensive1.9%
Moderate3.6%
Aggressive 
5.0%

Market overview

Q2 2021 began with the reopening of major economies, as COVID-19 vaccine rollouts continued to proceed at a healthy pace. The quarter also saw strong economic data releases and sizeable fiscal support, as governments in most developed markets eased COVID-related mobility restrictions and activity levels picked up. In contrast, Emerging markets lagged against their developed counterparts as the Covid-19 crisis worsened in economies like India in April with case fatality ratios increasing significantly.

On the fiscal policy front, following the passage of the American Rescue Plan in March, President Biden outlined two more fiscal packages which propose a total spending of $4.1 trillion. This stimulus will be directed at the country’s infrastructure and a more equitable recovery. However, the central bank has become slightly more hawkish and has acknowledged that tapering is being discussed. The FOMC June rate-setting meeting resulted in no change in the policy, but it is expected to raise rates twice in 2023. On the economic front, US GDP grew at an annualized rate of 6.4% during Q1 wherein the growth in consumption was especially strong. Inflation as measured by the core consumer price index (CPI) rose from 3% to 3.8% year-on-year in May, with the economic reopening being a big driver. 

On the other side of the Atlantic, leading economic indicators have reached multi-year highs in many regions, pointing to strong economic rebound in Q2. The European Commission signed off on the first of the national recovery plans which will receive funding from the €800 billion Next Generation EU fund. The UK saw a rise in COVID-19 cases in June, however this did not lead to significantly higher hospital admissions, suggesting efficacy of vaccines against the new Covid variant. On the monetary policy front, the BoE left interest rates and quantitative easing unchanged at the June meeting, however, the central bank acknowledged that inflation had been higher than expected.

Overall, equity markets ended the quarter on a positive note. Developed market equity (MSCI World Index) was up 7.3% in GBP terms. Emerging market equities (MSCI Emerging Markets Index) lagged developed markets and gained 4.4% GBP terms.

Within fixed income, Government bonds saw mixed performance across the board, as U.S. treasury yields and UK 10-year yields fell over the quarter, while yields in the Euro-zone rose. Benchmark 10-year U.S. treasury yields declined ending the quarter at 1.47%. The benchmark 10-year Gilt yield fell from 0.85% to 0.72%, after a sharp rise in the previous quarter. Government bond yields of Eurozone economies such as Germany, France and Italy, on the other hand rose with increments in the range of 9-15 bps.
Sterling ended the quarter almost flat against the USD at $1.38. It rallied to as high as $1.42 as the US Dollar reversed its strengthening trend and began to weaken in April and May. However, after the surprise of higher interest rates potentially coming sooner than previously expected from the FED in June, the US Dollar sharply strengthened, leaving Sterling almost flat over the quarter. Against the Euro, Sterling depreciated slightly from €1.18 to €1.17.

Gold saw a modest gain over the quarter, finishing at $1770.1 per ounce, after seeing some volatility in June over the shift in interest rate expectations by the federal reserve.

Portfolio performance

Returns net of feesDefensiveModerateAggressive
Apr0.9%1.8%2.6%
May0.5%0.4%0.4%
June0.6%1.3%1.9%
Since Inception (Oct 2015)29.6%49.8%58.0%

In Q2 2021, reopening of major developed economies and strong vaccine rollouts were positive for global markets. As such all portfolios posted positive performance, with the higher risk profiles outperforming the lower risk profiles. 

Within the equity sleeve, U.S. (GBP hedged and unhedged) and European (GBP hedged) equities were the main contributors to performance. 

The fixed income sleeve was also a positive contributor to overall performance across all risk profiles. Broad UK Gilts and Index linked Gilts were the main contributors to performance within the fixed income sleeve.

Portfolio Allocation and top portfolio holdings (as of March 2021)

 

Outlook

The BlackRock team (the “team”) remains optimistic as global vaccination drives progress, inflation expectations rise and economies recover. As such, the team moderately increased the overall equity-to-fixed income ratios. The team also rotated from traditional treasuries to inflation protected treasuries and reduced overall duration. 

More specifically, within the Equity sleeve, UK equities and emerging market ESG equities were added across all profiles. The team rotated from U.S. GBP hedged equities to U.S. ESG equities in the Moderate and Aggressive profiles. Finally, the team reduced the allocation to Japanese ESG equities across the range.

Within the fixed income sleeve, the team rotated from long-dated GBP hedged U.S. treasuries to their unhedged versions. Inflation protected GBP hedged treasuries were added whilst reducing treasuries of 7-10 years in all 3 profiles. The team also added to GBP denominated ultrashort ESG bonds in the Moderate and Aggressive, whilst trimming GBP denominated short-term Gilts in the Moderate profile. In the credit sleeve, the team trimmed ESG GBP hedged corporate bonds in the Defensive and Moderate profiles.

Finally, the allocation to Gold was trimmed by 2% across the range to fund the addition to the equity sleeve. The team adjusted the non-GBP FX weights to move closer to its strategic FX hedge ratio.

Disclaimer

Saxo Markets provides personal portfolio management via its SaxoSelect service. Before entering any managed portfolio, we must first take into account your investment objectives, goals and financial situation. 

This material should be considered as a marketing communication under the Financial Conduct Authority’s rules. Saxo Capital Markets UK Limited (SCML) undertakes reasonable efforts to ensure that any information published in this communication is reliable. SCML makes no representation or warranty, and assumes no liability, for the accuracy or completeness of any information contained in this communication. 

Investing in financial products always involves risk. As a general rule, you should only invest in financial products if you understand the risks associated with them. Investing in a portfolio with currency that differs from the base currency of your account carries the risk of exposure to changes in the rate of exchange between them. See the full Managed Portfolio Disclaimer for more information. Past performance is not a guide to future performance.

SaxoSelect Balanced Portfolios are offered by Saxo Bank. BlackRock’s data which is utilised by Saxo Bank in building the SaxoSelect Balanced Portfolios is based upon certain internal assumptions and BlackRock has not considered the suitability of the content of its data against individual needs and risk tolerances for all investors. As such, BlackRock’s data is for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy the securities described within. BlackRock’s data has not been prepared in accordance with the legal requirement designed to promote the independence of investment data and is not subject to any prohibition on dealing ahead of the dissemination of the data provided to Saxo Bank and, as such, is considered to be a marketing communication to Saxo Bank. 

iShares and BlackRock are registered trademarks of BlackRock, Inc. and its affiliates (“BlackRock”) and are used under license. BlackRock is not affiliated with Saxo Bank. BlackRock makes no representations or warranties regarding the advisability of investing in any product, portfolio or service offered by Saxo Bank or any of its affiliates. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product, portfolio or service offered by Saxo Bank or any of its affiliates nor does BlackRock have any obligation or liability to any client or customer of Saxo Bank.

 

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.