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Dolfin’s response to Covid-19

We will safeguard the wellbeing of our team, continue to act as responsible members of the global community, and deliver uninterrupted, high-quality service to our clients and partners.

Update on model portfolios

Investment outlooks / Q3 2020

Having gone through some of the most turbulent market and economic environments in recent history, we are very pleased that eight of our nine global multi-asset model portfolios are in positive territory as we reached the mid-point of the year.

It has not been an easy journey for anybody thus far in 2020. Within our model portfolios, we have had to fundamentally change the underlying investment strategy and our models continue to evolve along with the underlying market environment.

Operating in this market environment extremes requires nimbleness, responsiveness and forward-thinking.

This has necessitated a change from utilising short-dated government bills into short-dated investment grade corporate bonds. With interest rates having been taken down to effectively 0 per cent or below across the developed markets, short-dated government bills provide limited downside protection and no upside contribution.

Performance numbers

Click table to expand. P = Portfolio RI = Reference Index * 12 months rolling as at end June 2020. All performance is quoted gross of fees. For further details, please refer to the important information section.

 

 

 

 

 

Fixed income strategy

Across all three currency sets, we have had to migrate the fixed income strategy away from short dated government bonds into short dated investment grade corporate bonds. Liquidity, although plentiful if you are selling, has been tight from a buyer’s perspective with holdings of these issues often reluctant to part with them as they are in high demand. Consequently, it has taken some time and a lot of effort to reallocate.

Our EUR denominated models have been the lowest performing on a YTD basis as the ECB had no room to cut rates further – so downside protection which is normally provided by interest rates being cut was absent. With much of core Europe providing negative yields we have positioned ourselves on the periphery in Greece and Italy with both of those selling off in March on Covid-19 fears.

Click table to expand.

Within both our USD and GBP denominated portfolios, our conservative portfolios have outperformed with a larger allocation to fixed income and to longer-dated government bonds.

The change in fixed income strategy is highlighted with the allocation to short-dated government bills rotating in the second quarter into the investment grade bonds. Within this allocation we have reduced holdings in bond ETFs and increased our holdings in individual credit names. This provides us another layer of control over sector and issuer risk that we are comfortable owning in this negative economic environment.

Equity strategy update

We have also increased our equity exposure, albeit from very low levels. Having made some initial equity purchases in March –finishing March with a higher equity allocation than we entered the month with – we have continued to deploy into our coronavirus strategy across all our discretionary global multi-asset portfolios.

We remain conservatively positioned across all our models – with a ‘neutral’ equity allocation of 45% in balanced portfolios compared to the 18.3% that we owned as at 30 June 2020. Whilst we anticipate that this allocation could climb further, we are not wanting to chase the markets higher as we consider them already in bubble territory.

In normalised market conditions, we would expect the core equity holdings to be the larger of the two components. In the current market environment with so many companies suffering due to their business model and sector, we have opted to have a larger allocation to single stocks to control where our risk exposure is allocated at a much closer level. Our underlying holdings are spread around the world and diversified between sectors and currently all form part of our coronavirus re-deployment strategy; either sitting in our resilient or recovery baskets.

The world has changed and so have the financial markets. Looking at investment opportunities with a pre-Covid-19 filter does not work.

Pulling back to our absolute return mandate, with nearly all of our multi-asset portfolios in positive territory so far this year, we have the luxury of deciding when we want to deploy rather than trying to play ‘catch up’. We are not complacent about our positioning and our performance versus our peer group – as the underlying market environment has fundamentally changed.

We are working on adjusting our underlying strategic asset allocation to factor in the next conditions – especially in the fixed income market – that we are operating within. Absolute returns continue to be challenging from a mandate perspective – but this remains our focus as we strongly believe that this is in the best interests of our clients.

The road ahead will be volatile at times and we will continue to pro-actively adjust our allocations in order to achieve the best risk adjusted returns that we can.


Past performance is not a reliable indicator of future returns. Forecasts are not a reliable indicator of future returns. If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations.

If not otherwise indicated, all graphs are sourced from Dolfin research, July 2020.

For more information please read our disclaimer.

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