Quilter has added index-linked gilts as a dedicated asset class to its Cirilium portfolios, aiming to improve diversification against the UK inflation outlook.
The exposure comes through the Vanguard UK Inflation-Linked Gilt Index fund, which Quilter added to the lower-risk portfolios. The allocation is about 5% for the Cirilium Conservative portfolios and scales down as fixed income exposure falls in higher-risk profiles.
The change is part of an optimisation of the Cirilium portfolios’ strategic asset allocation (SAA).
Ian Jensen-Humphreys, portfolio manager of the Cirilium portfolios, said: “This feels like a very pertinent time to be adding index-linked gilts to the portfolios. Bonds usually do well in a growth shock, but their diversification benefits break down when inflation is rising, reducing the value of the future income received consequently.
“Events earlier this year showed why you need both types of gilts within a portfolio given the geopolitical situation risked manufacturing a hit to growth, before transforming into an inflation risk the longer it went on. With the situation in the Middle East looking calmer, albeit with the fragile ceasefire wobbling on a regular basis, now feels like a good time to be adding exposure in our portfolios to an inflation-mitigating asset.
“Investors in the UK care deeply about inflation and its ruinous properties, so we always want to look for opportunities to enhance their asset allocation and ensure they have the right diversification to not only grow their capital, but to protect it too.”
Quilter reviews each range's allocation every quarter and usually makes recommended changes once a year. The same update raised exposure to Japanese equities and reduced exposure to European equities.