Plurimi Wealth's managing director, Piers Cushing, explains why they are turning cautious as valuations become stretched.
'Plurimi offers a high net worth multi-asset class MPS through client segregated accounts. We embrace dynamic asset allocation, rather than the industry’s homogeneous risk profiling approach, and this permits greater flexibility to express alternative views.
Our lead offerings are derived from two, complementary investment philosophies. The Dynamic Strategy focuses on wealth preservation and attractive real returns, with a CPI+ benchmark. The Astute Strategy focuses on growth and attractive relative returns, with an MSCI World benchmark.
The lead strategies attempt to address the demands derived from two primal instincts: fear and greed. Clients that concern themselves with the investment ‘journey’, liquidity and short-term wealth preservation will be drawn to the Dynamic Strategy, which is macro, top-down led. Clients that concern themselves with optimising relative returns over the long-term will be drawn to the Astute Strategy, which is investment, bottom-up led. We also offer bespoke mandates, such as income generation.
The portfolios are constructed utilising direct instruments, which allows us to express conviction, shape the risk and minimise the costs. Rob Cloete (co-manager) and I are directly accountable for portfolio performance and are invested alongside our clients. Our process is supported by independent buy-side macroeconomic and investment research.
Our portfolio construction process uses global equities, government bonds – both conventional and inflation-linked, credit, cash and alternatives. An ambition, more so in the Dynamic Strategy, is to engineer convexity in the returns profile and to do that we are constantly on the lookout for negative correlation between investments. Our process is disciplined and requires a thorough and simultaneous understanding of many moving parts. We are nimble and we do not operate via group consensus (the quickest route to mediocrity).
The Dynamic Strategy’s asset allocation is currently 45% risk-on and 55% risk-off, while the Astute Strategy’s asset allocation is 80% risk-on and 20% risk-off.
For equities and credit, we continue to prioritise liquidity; quality, cash-generative companies with resilient top-line growth, sensible capital allocation and strong balance sheets; accountability and transparency.
We have hedged part of our dollar exposure for sterling clients.
Long-date government bonds
Controversially, and especially within the Dynamic Strategy, we maintain a healthy position in longer-dated government bonds (high quality liquid assets). The return profile delivers a negative correlation coefficient, with respect to equities, especially when it is needed.
The bond market has clearly signalled its dissatisfaction with the central bankers and their various attempts to reflate an over-indebted global economy. If that sounds uncomfortable, go and read about Marvin Goodfriend, the latest Federal Reserve nominee, and what he specialises in.
Beneath the surface of a carefully crafted ‘wealth effect’, the global economy is not as healthy as the incumbent powers-that-be would have you believe.
We tactically reduced our allocations to equity recently, by around 5%, and we increased our allocation to cash and IG credit as a consequence. We have maintained our 7.5% allocation to gold (our only ETF/fund).
Valuations are stretched at the index level, expectations are brittle and this is probably not the moment for heroics. Having said that, equity remains our single largest asset class exposure and we are eyeing up some compelling ideas.
We only started the MPS in 2017, but for the year the Dynamic Strategy delivered 4.2% (sterling) and 10.7% (dollar) and the Astute Strategy delivered 10.3% (sterling) and 19.5% (dollar).'