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
Investment styleMacro, diversified investment focus
Quarterly return (net of fees) 

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
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)



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.


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