2018 saw the culmination of a series of economic risks; US interest rates; the approaching end of the economic cycle; trade wars and other geopolitical issues; and of course Brexit. In terms of markets, it was one of the toughest years we have seen since the Global Financial Crisis in 2008. In this environment, there have been very few positives and we saw some drops in portfolios as result.
These risks have become more pronounced throughout 2018. As such, we are taking action to protect portfolios by reducing our sensitivity to equity risk and refining exposures to our areas of conviction. In place of equity risk we are building in more downside protection in the form of short dated bonds and diversification to offset the heightened volatility in other assets.
Whilst we see the global economy remaining in generally good order over the year ahead, we do anticipate that it will continue to be challenging. With these risks in mind we have brought forward our Investment Committee Meeting and have implemented these changes earlier in January than usual. These changes will be prominent within the more defensive Investment Model Portfolios (Cautious, Conservative, and Balanced). Whilst we have made some moves towards more defensive equities, the Moderately Aggressive and Aggressive portfolios are still largely exposed, as there is limited scope to reduce volatility. We expect to maintain our more cautious stance throughout a good part of 2019.
We remain vigilant to the risks on the horizon and are taking prudent measures to mitigate these as much as is possible in the current environment.
Read our latest Investment Market Review & Outlook for further details: