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We’re making changes to our Medium-Term Asset Allocation

We’re implementing two significant asset allocation positions to reflect our current medium-term view of core equities markets. We’re making these changes over a period of time to lessen the potential impacts of any major price movements.

  • We’re reducing our allocation to the Developed Markets of North America, Japan and Europe (excluding the UK) from our Strategic Asset Allocation benchmark, and continuing to increase our allocation to Emerging Markets. This is because we believe Emerging Market equities are offering better value than these Developed Markets, making them relatively more attractive.
  • We’re increasing the amount we’re investing in UK equities. While we’re neutral on the long-term outlook for UK equities, in our view they’re currently trading at attractive valuations, so we see an opportunity to add value in the medium-term.
Video about medium term asset allocation

Medium-Term Asset Allocation

Watch our film to find out more on: 
  • the importance of asset allocation 
  • how our medium-term asset allocation fits with our strategic asset allocation.
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  • Asset Allocation Update – Film Transcription

    Hello. My name is Ross McFarlane, I’m a Senior Manager in the Asset Allocation Team at Scottish Widows. Asset Allocation is the main driver of long-term performance in the Multi-Asset Fund so getting this right is a main focus of our efforts.

    So, what do we mean by Asset Allocation? Basically, Asset Allocation is choosing the right mix of assets to ensure the best outcome for our customers. We think about Asset Allocation in two different ways. One, long-term strategic Asset Allocation or SAA and secondly medium-term Asset Allocation or MTAA.

    So, what is SAA? Strategic Asset Allocation forms the core of our approach to multi-asset investing and it involves taking a long-term view on assets, for example equities, bonds and properties and choosing the best mix for the long-term. And by long-term here we mean between five and ten years. Decisions are reviewed formally on average every one or two years and changes happen only very infrequently through time.

    Moving onto medium-term Asset Allocation. This is more opportunistic than SAA in its nature, with decisions typically having a life of between one and three years on average. So, we have the SAA running as a long-term view, but markets tend not to move in a straight line and sometimes they can become misaligned and this can happen for a variety of reasons. For example, at the moment it might be political, it may be because of trade wars or it may be because of some unexpected market shock.

    But sometimes the market will move away from its long-term value and this can offer an opportunity for us to take a medium-term position with a view to moving back to the SAA after the markets have returned to normal.

    Decisions are reviewed on a regular basis and changes only happen when we believe that the costs of making a change is justified by a better outcome for our customers. When we do make a change, we tend to spread the changes over a period of time to reduce market impact and to spread entry point risk.

    Let me give you a couple of examples. The first one relates to UK equities. So, in the long-term we don’t have a particularly optimistic view for the UK equity market and this is reflected in the SAA. However, in the shorter and medium term, because of political events in the UK, we believe that the market has become misaligned and is offering us an opportunity. So, consequently we’ve used this to add to our position in UK equity, with a view to reversing to the SAA when the market returns to normal.

    The second example is emerging markets. For emerging markets, we have a more optimistic long-term view and this is reflected in the SAA. However, due to the trade tensions between the US and China we believe that emerging markets have fallen to an extremely attractive level relative to developed markets and we’ve taken this opportunity to add to our emerging markets exposure at the expense of the developed equity markets. Again, this is done on a medium-term basis and we would expect to return to the SAA once the market normalises.

    So, to recap Asset Allocation plays a vital role in the long-term returns to a multi-asset portfolio and getting this right is the focus of our efforts.

    We employ two forms of Asset Allocation, long-term strategic and shorter-term, medium-term asset allocation and both of these are subject to regular and robust review. Changes happen only infrequently and when they do we make sure that the cost of a change can be justified by a better expected outcome for our customers.


Read our investment bulletin that provides more detail on the changes:

Medium-Term Asset Allocation within SW Multi-Asset Pension Fund ranges (PDF, 162 KB)

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