Welcome to the latest Astute Fund Overview, our opportunity to tell you about some of the recent changes we have made in the VT Astute funds, and the reasoning for those changes.

As the funds are actively managed by a dedicated investment team, we prod and interrogate all of our holdings on an ongoing basis, ensuring that, if we were to build the funds today, starting afresh, that we would have enough conviction in each holding to select it again. Of course, this doesn’t always lead to portfolio changes, however these past few months have provided us with plenty of opportunities to makes tweaks around the edges of our holdings.

Firstly, we reduced US currency exposure.

We reduced ‘L&G US Equity’ and purchased an ‘Invesco S&P 500 Hedged ETF’ in all of our funds.

This trade within the funds allowed us to hedge some of our US dollar risk. When we invest in foreign markets, the US for example, we are buying US listed companies in dollars. But the gain or loss we make is in pound sterling, and therefore the return is based on both the performance of company shares, and the exchange rate.

Ahead of the first interest rate cut in the US and the likely volatility surrounding the US presidential elections, we’d like to take some of the currency risk off the table to reduce exposure to a potentially weakening dollar. This hedged holding that we have added will help to offset any currency fluctuation.

We enhanced our exposure to smaller companies.

We sold ‘Hermes US SMID’ and purchased an ‘S&P 500 equal weight ETF’. We also took the opportunity to participate in a new manager launch (Lazard) to replace our Russell 2000 holding.

We believe the outlook for small to medium sized companies is attractive. With these trades, we took the opportunity here to gain cheaper exposure to small and medium sized companies, and also took the opportunity to potentially enhance performance by securing a new fund that exploits the inefficiencies in the US smaller companies’ market.

We added a layer of protection in the unlikely event of a severe economic downturn.

We purchased longer dated UK government gilts in place of our more economically sensitive fixed income holdings in our higher risk fund.

Our base case (which means what we expect will happen) is that we will see a slow decline in economic activity in the UK, which will help central bank policy makers to start lowering the base rate without the risk of a resurgence in inflation. Whilst we believe this will be the case, the task of manipulating the path for inflation by lowering interest rates isn’t easy, and in their attempt to do this, the Bank of England will be treading a fine line. Due to this, in our highest risk Growth portfolio, we added a layer of protection to buffer the fund if the economic picture deteriorates. This places the fund in prime position to benefit from the upside if stocks and shares rise as we expect, whilst also providing protection for the potential of a worse economic outlook.

You can find further details on recent fund activity in the Quarterly Commentary for Q2 2024. We hope that you’ve found this useful – please get in touch with your financial planner if you have any questions.

See you next time.