1. Outline your fund's core investment philosophy. How is it designed to be resilient and to find opportunity during market shocks?
The Universal Range aims to deliver a range of cost-effective, risk-managed solutions, through a well-diversified global portfolio of equities and fixed income. We believe that active asset allocation is one of the key drivers of returns. The portfolios are diversified at all times across asset classes, timeframes, geographies and investment styles. Active management takes place across three levels: strategic asset allocation on a quarterly basis, security selection employing in-house investment teams' expertise, and fortnightly tactical asset allocation. The Funds make use of both fundamental and quantitative analysis at an asset allocation level, as well as at a security selection level.
Given the philosophy and investment process which underpins the Funds, we have multiple levers we can utilise to position for both opportunities and risks:
Asset Allocation: The split between equities and fixed income reflects longer-term strategic considerations, alongside more tactical adjustments to account for prevailing conditions and near-term risks and opportunities between and within asset classes.
Security Selection: Our specialist teams search out the best available opportunities. Attractive valuation, proven management and appropriate consideration of ESG factors are among the characteristics our stock pickers often favour.
Geographic Exposure: With a global remit, we invest across a range of markets and adjust weighting based on where we see value and opportunities or are concerned about risks.
Managing Risk: We can address risks such as currency fluctuations, government policy and central bank actions using a range of active techniques.
2. Thinking back over recent events like the pandemic, the 2022 rate-hike cycle, or even the GFC, did you follow a consistent framework or does each unique crisis require a different approach?
A strategic approach to asset allocation can generate an asset mix that helps deliver investment outcomes that are aligned with clients' longer-term goals, even through volatile periods such as the pandemic. This can be enhanced through an actively managed tactical approach designed to take advantage of shorter-term themes and opportunities, as well as helping to better preserve capital in more challenging periods. During sharp downward corrections in US equities earlier this year, for example, we took the opportunity to increase weightings at what looked to be attractive valuations.
Whilst the drivers behind significant market events may vary, our investment process has remained consistent. A rapidly evolving market event may necessitate more frequent tactical discussions however, to ensure we are incorporating pertinent new information that could result in a meaningful shift in the fundamental backdrop into our investment base case, and thus tactical positioning. There is clearly a balance to be struck however, between adjusting our tactical positions when we believe the fundamental picture has changed, versus trading on short term news flow which we look to avoid. In our view it is better to take a more considered approach – positioning portfolios to tap into themes and shifts where the longer-term outlook remains more certain and our conviction higher.
3. How do you differentiate between market noise and genuine systemic crises?
In quick moving news flow driven markets, like those we have seen this year, it can be tempting to rapidly reposition portfolios to reflect announcements like those on US tariff policies. However, given the sharp policy reversals we have seen in recent months, such an approach could quickly lead to being on the wrong side of trades.
Our tactical asset allocation views are informed by 3 pillars:
Fundamental: For example, macro cycle (growth, inflation and interest rates), policy (central bank and policy maker stance), earnings / defaults.
Valuation: For example, fair value modelling, risk premia analysis, intra-market valuation analysis.
Behavioural: For example, positioning, sentiment, flow.
By considering these different aspects, we aim to form a view on the macro backdrop and expected implications for markets, and hence tactically position the portfolios to either best take advantage of any associated opportunities or reduce exposure where we see specific risks.
When events, such as significant policy announcements or data releases, generate market volatility we would consider whether this new information represents a meaningful challenge to our investment views and, if it does, whether it is significant enough in terms of both magnitude and expected longevity to change our view and thus warrants an adjustment in portfolio positioning. We consider if this new information represents a more longer-term structural shift, or if the market reaction is more ‘knee-jerk' in nature. In the latter scenario where our thesis remains unchanged, we would aim to look through the ‘market noise'.
4. As you see stress building, how do you adjust the portfolio? Are you rotating into specific sectors or asset classes?
Our more frequently reviewed tactical asset allocation is designed to add value by profiting from shorter-term opportunities and reducing exposure to specific risks through time. These views are then integrated into the portfolios in the most efficient manner, either by physical trades or through synthetic exposures. The tactical process involves inputs and discussion between asset class specialists, economists, and multi-asset experts. Inputs used include fundamental views and quantitative models.
In addition, we implement risk mitigation trades on a more infrequent basis, which will typically take one of three forms:
- Changing the profile of the exposure: Occasionally, exposure can be amended through options which allows the fund to maintain the upside potential whilst reducing the potential downside, for example within equities.
- Diversifying: Adding exposure to asset classes that will likely perform well during the ‘risk' event. For example, government bonds when equity markets sell off.
- Reduction in exposure: Simply by selling down some or all of the exposure related to a specific risk. For example, we recently reduced some of our US Dollar (USD) exposure on expectations of further USD weakness going forward.
5. During market shocks, correlations often go to one. How do you manage portfolio construction when traditional diversification fails?
Our strategic asset allocation, the starting point of our portfolio construction, is longer term in nature and is based on long term fundamentals and return expectations. In addition:
- Active stock selection means different geographic and style biases within the underlying strategies, hence will offer diversification to some degree even in market shocks.
- Active tactical asset allocation gives us the ability to diversify across and within asset classes, and means we can try to position the portfolios to take advantage of opportunities and reduce exposure to certain risks.
- We can make use of risk mitigation strategies, such as options.
6. Crises create opportunities: Can you provide an example of a position you initiated during a recent period of market panic? What was the thinking behind it and how did it play out?
After the announcement of higher than anticipated US tariffs on ‘Liberation Day', markets began to rapidly price in a growing likelihood of recession, with credit spreads, notably in High Yield, widening as a result. Despite the market turmoil, our base case was not one of recession, although admittedly we are now forecasting weaker US growth than we had been expecting at the start of 2025.
With respect to High Yield in particular, our view at the time was one of continuing solid fundamentals and with that in mind, we felt that the levels of spreads reached were unjustified, hence we took the opportunity to initiate a tactical long in High Yield in the Universal Funds. Since then, spreads have tightened significantly as the expectation of recession has receded, leading us to reduce the magnitude of this position and take some profit in July.
7. Looking at the current global landscape, what do you think could be a significant event on the horizon? Are you positioning for that possibility?
Over recent months we have seen increased political pressure on the US Federal Reserve (Fed), with President Trump repeatedly calling for lower rates to help support the US economy and reduce the cost of servicing its debt, and the independence of the central bank is starting to be challenged. We saw an immediate market reaction in July when various news outlets reported that President Trump was close to firing Fed Chair Powell, who's term as Chair ends in the first half of 2026, with the yield curve steepening and the US dollar declining. Whilst Trump quickly refuted this and markets retraced some of their original moves, the incident gave a preview of the potential reaction to such an overt threat to Fed independence.
We expect concerns around Fed independence to remain in the background as Trump seeks more influence over monetary policy, in part by looking to populate the Board with more people aligned with his desire for lower rates – we have already seen this in his choice of Stephen Miran to replace Governor Kugler post her resignation, and his attempts to fire Governor Cook. Further escalation, such as renewed discussions of firing Powell or a significantly dovish and philosophically ‘Trump-aligned' pick for Powell's replacement, could bring this back to the fore. Whilst not explicitly positioned for this possibility currently, it does form part of our rationale for expecting a weaker US dollar going forward, and hence our recently reduced USD exposure in the Funds.
8. Market shocks often reignite the active versus passive debate. What is the argument for active management during periods of extreme volatility?
Whilst active and passive can have a role to play, we believe active management can help navigate uncertainty in volatile periods. By not being tied to the direction of markets, as you are if you invest passively, you can seek opportunities for outperformance and reduce exposure to risks as they emerge. Active management can offer the following:
Preserving Capital: The adjustment of allocations between and within different asset types, as well as across regions, can mitigate some of the impact of challenging markets.
Scope for Outperformance: We favour investments with outperformance potential by virtue of their valuation and fundamental prospects, while looking to avoid those that look expensive or vulnerable. Within a passive strategy, you do not have this choice.
Harnessing Volatility: Volatile markets can cause shorter term investment valuations to fluctuate, sometimes sharply. For an active manager, like ourselves, these sorts of moves can provide opportunities to add value.
Concentration Risk: The combination of strategic asset allocation, active security selection and a global remit results in diversified portfolios which can reduce concentration risk.
CT Universal MAP Ranges - Low-cost, active multi-asset options suitable for range of financial planning scenarios.
