Changes to core portfolios

08/10/2025

We have been continuously monitoring the market landscape and macroeconomic environment and have made the decision, as part of our process, to execute some refinements to the portfolio allocations to better meet client objectives over the long term.

Detailed portfolio allocation changes and rationale:

UK Equity allocation (Passive – iShares)

The current equity breakdown is being altered to allow for a dedicated passive UK equity allocation to be introduced across all portfolios. The case for introducing UK equity is supported by both top-down and bottom-up factors.

Top-down drivers for UK equities are increasingly compelling. After years of capital outflows and a sharp decline in domestic institutional holdings, UK equities are now significantly under-owned. This sets the stage for policy-led re-engagement, with initiatives like the Mansion House compact and Labour reforms likely to encourage reinvestment. The UK is forecast to be the third-fastest growing G7 economy in 2025, despite negative domestic sentiment. Valuations remain attractive and with US market dominance at record highs, a shift toward undervalued markets like the UK could follow.

Bottom-up signals reinforce the opportunity. UK companies are being acquired at high premiums, reflecting strong intrinsic value. Share buybacks are rising, showing corporate confidence and a strategic push to enhance shareholder returns. Meanwhile, attractive dividend yields across the FTSE indices offer a solid income base, even for non-income-focused investors.

Fixed Income allocation

In the lower-risk portfolios (Conservative, Balanced and Moderate), we are reducing exposure to global investment grade corporate bonds and reallocating to UK government bonds. This shift is driven by historically tight credit spreads, which sit in the lowest percentiles over the past decade. Historically tight spreads leave limited room for further compression and increase the risk of widening spreads which may negatively impacting portfolio returns.

The proposal aims to reduce portfolio spread duration, lowering the portfolio’s sensitivity to credit spread movements, by increasing the allocation to active gilts which have a spread duration of zero. This proposal enhances downside protection and supports a broader de-risking strategy, all while maintaining similar yield levels and minimal impact to portfolio expected return and risk levels.

Dynamic portfolio allocation

The allocation to multi-class credit, specifically the TwentyFour Dynamic Bond fund, is being reduced. As a result, equity exposure within the portfolio will increase to 80%.

Multi-class credit provides diversified exposure to high yield bonds, leveraged loans and other credit instruments, and remains an attractive component within our wider portfolio range. However, within the Dynamic portfolio, we believe a higher equity allocation is now better aligned with the intended risk and return profile of the strategy going forward.

Adventurous portfolio allocation

The allocation to multi-class credit via the TwentyFour Dynamic Bond fund will be removed within the Adventurous portfolio. As a result, equity exposure will increase to 100%, with a higher weighting allocated specifically to emerging-market equities.

While multi-class credit remains a valuable way to achieve diversified exposure across credit instruments within our broader portfolio range, we believe its role within the Adventurous portfolio is now less aligned with the return objectives of this mandate. As the highest-risk and highest-return portfolio in the range, its positioning is better served by a full equity allocation. By removing fixed-income exposure, the portfolio remains focused on capturing higher expected-return opportunities.

The increased weighting to emerging-market equities further supports this positioning. Emerging markets continue to offer attractive long-term potential, supported by favourable demographics, rising domestic consumption and ongoing structural reforms that promote productivity and growth. In addition, valuations across emerging markets remain broadly appealing compared with developed peers, providing scope for enhanced return potential. Although this shift introduces additional risk, we believe it is well-suited to the Adventurous portfolio’s higher risk tolerance and long-term growth objectives.

Global Quantitative equity

We are introducing a dedicated allocation to global quantitative equity across all portfolios through the Man Systematic Global Core Equities fund. This allocation will be funded by a marginal reduction in the weightings to existing global equity managers.

Since the removal of Ardevora from the portfolios in 2023, passive global equities have served as a cost-efficient solution in its place. Following an in-depth review, Redington have recommended a quantitative global equity strategy that employs a blended style-factor approach.

This strategy is designed to complement existing portfolio construction and align with our longstanding investment philosophy. Quantitative strategies provide differentiated exposures that enhance diversification and capture shorter-term sentiment signals in the market, while maintaining a disciplined, systematic process. In addition, Redington have negotiated highly attractive fee terms for this fund, providing Lathe & Co clients with access to active-management exposure at a much lower cost than is typically available in the broader market.

Partial Currency Hedging

Finally, we are introducing a partial currency hedge across the portfolios. Given the current geopolitical backdrop, the nature of tail risks has evolved, with a higher likelihood that the US dollar could weaken alongside equities during periods of market stress. As a result, we are less confident in the dollar’s role as a reliable diversifier in such scenarios.

To address this shift, we are implementing the global quantitative equity allocation through an FX-hedged share class, thereby introducing partial FX hedging across the portfolios. This provides an operationally efficient and cost-effective means of managing currency exposure. More broadly, this decision ensures that we are proactively managing currency risk and maintaining robust diversification within the portfolios.

We believe these changes ensures that your portfolio remains aligned to your risk profile and optimised to provide greater future potential returns.

If you have any questions or would like to discuss these updates further please do not hesitate to get in touch.