The Investment Committee responsible for our Gaia portfolios met this Tuesday to review recent market developments and assess portfolio positioning.
Markets have continued to prove resilient despite ongoing geopolitical uncertainty. Against this backdrop, we reviewed our Fixed Income allocations and concluded that the current balance of risks and opportunities favours selectively redeploying capital into areas with stronger prospective returns.
We replaced L&G All Stocks Gilt Index with the Amundi Prime Global Government Bond ETF. Whilst government bonds continue to provide important diversification benefits, we believe the return potential from UK gilts alone is relatively modest compared with the risks involved. The Amundi fund provides broader global exposure, including the US, Japan, and Europe, whilst retaining the defensive characteristics we need during periods of market stress. Importantly, we have bought the unhedged share class, which allows currency movements to contribute to downside protection in the event of a sharp sell-off, meaning a smaller allocation can potentially deliver similar defensive benefits.
In addition, we reduced our exposure to inflation-linked assets, trimming positions in both CG Dollar and L&G Global Inflation Linked Bond. As inflationary pressures have moderated, we believe the return potential from these strategies has become less compelling relative to other opportunities available within Fixed Income markets.
The proceeds were redeployed into shorter-duration investment grade credit through our existing holdings in EdenTree Sustainable Short Dated Bond and Vontobel TwentyFour Sustainable Short-Term Bond. We continue to favour this area of the market, where yields remain attractive and we believe investors are being better compensated for the risks involved.
Having made these changes, we believe the portfolios remain well positioned to navigate a range of market outcomes. We will continue to monitor developments closely and make any further adjustments as they become necessary.
