Insight Diversified Inflation Plus (ETL0396AU) Report & Performance

Despite an upward move in rate expectations, risk markets rallied in June, helping the portfolio deliver a positive return. Our equity exposures made the largest contribution to performance, particularly positions in the US and Asia. We increased our aggregate equity exposure, closed a UK versus global equities relative value position and added positions to capture upside in some laggard European and emerging equity markets. Dividend futures were a further positive, benefitting from the more constructive risk backdrop. In fixed income, returns were more mixed, with our holdings in government bonds, high yield credit and emerging market debt delivering positive returns, but investment grade credit a small detractor. Infrastructure holdings detracted from performance and, although we continue to believe the sector has long-term value, we reduced our position in the short-term. We continued to add defensive option structures on a range of equity markets to protect against mild risk pullbacks.

Divergences are becoming extreme in both economic activity and asset price performance. High and persistent inflation created a choppy environment for most asset classes in May as market participants were left struggling to assess where the terminal level of rates would be. Against this backdrop the portfolio delivered a small negative return. Government bond yields rose as rate expectations were repriced and, although there was some relief following the resolution of the US debt ceiling standoff, this led to a negative performance from our fixed income holdings. In real assets, there was a pullback in infrastructure prices, and, although losses were limited by our low exposure, a sharp decline in commodity prices detracted from returns. Dispersion in global equity markets was wide, with gains in the US and Japan counterbalanced by losses in Europe and emerging markets. Our total return strategies proved resilient, with positive contributions from dividend futures, commodity carry positions and option-based positions built to benefit from softer markets.

Concerns about the likely impact of US banking sector stresses has seen expectations for further interest rate hikes cut back, although high and sticky inflation puts the ECB and possibly the Bank of England on track to continue the hiking cycle well after the Fed take a pause. Whether we are at the genuine end of the tightening cycle, or this is simply a premature pause, means the range of possible investment outcomes over the next few months appears wider than usual. We are maintaining a well-balanced portfolio, using our total return strategies as an additional source of diversification, and reshaped our relative value positions in both equity and currency markets.

The portfolio delivered a positive return over April. Our alternatives exposures contributed most, with our Infrastructure holdings bouncing back and our total return strategies posting another positive month. Our traditional exposures to equities and fixed income were also positive contributors.

After a strong start to the year, both bonds and equity markets experienced a reversal in February as economic activity and inflation surprised on the upside. The prospect of higher terminal rates and a longer wait for monetary policy easing pushed yields upwards, weighing on our fixed income holdings. Our broad equity positions, in aggregate detracted from performance, with emerging markets performing poorly in the face of higher rates, but European (including UK) equities a bright spot. Positions designed to capture relative value between UK small and large cap stocks and European versus US equities performed well. Our diversifying currency based relative value trades also gained, as did option-based strategies designed to capture equity market weakness. In real assets, both our infrastructure and commodity holdings were small detractors to performance. We tactically edged our equity exposures higher, reduced government bonds and added defensive structures on a range of equity markets.

After a strong start to the year, both bonds and equity markets experienced a reversal in February as economic activity and inflation surprised on the upside. The prospect of higher terminal rates and a longer wait for monetary policy easing pushed yields upwards, weighing on our fixed income holdings. Our broad equity positions, in aggregate detracted from performance, with emerging markets performing poorly in the face of higher rates, but European (including UK) equities a bright spot. Positions designed to capture relative value between UK small and large cap stocks and European versus US equities performed well.

Our diversifying currency based relative value trades also gained, as did option-based strategies designed to capture equity market weakness. In real assets, both our infrastructure and commodity holdings were small detractors to performance. We tactically edged our equity exposures higher, reduced government bonds and added defensive structures on a range of equity markets.

Across a breadth of asset markets, performance took a sharp downward turn in December with equities, credit and government bonds all negative. Against this backdrop the fund generated a negative return, despite our low level of cyclical exposure. Our broad equity positions were the main detractor from returns, although our relatively low exposure helped to contain losses. We edged our exposure further downwards, maintaining a preference for markets that we believe are less vulnerable to corporate earnings downgrades in the year ahead. Rising yields and widening spreads negatively impacted our fixed income positions, but we took advantage of higher yields to build credit positions. Our commodity holdings were broadly flat, as were our infrastructure holdings where broader gains were offset by idiosyncratic events that negatively impacted two holdings. Absolute return exposures contributed positively, and we added positions designed to benefit from more rangebound conditions.