The Quilter Investors Monthly Income and Monthly Income & Growth portfolios have introduced several new asset classes to the range following an ‘optimisation’ of its strategic asset allocation.

Quilter Investors portfolio managers, Helen Bradshaw and CJ Cowan, have introduced local currency emerging market debt as an asset class within the fixed income section of the portfolios.

The addition seeks to provide the portfolios with another income stream and a diversified driver of returns.

The emerging market debt exposure will be 1.25 per cent in the Monthly Income portfolio and 0.75 per cent in the Monthly Income & Growth portfolio.

To get this exposure, the portfolios have invested in the L&G Emerging Markets Government Bond (Local Currency) Index Fund.

Additionally, within fixed income, and aligned with the WealthSelect and Cirilium portfolios, the strategic asset allocation of the Monthly Income range has broadened out its fixed income exposure by breaking it down into four component parts, rather than using a single broad fixed income index.

Quilter Investors stated that this would give the optimisation process more freedom to vary the weighting between UK and global corporate and government bonds, with the aim of taking advantage of opportunities within this asset class.

To reflect these changes, the portfolios have introduced the Premier Miton Corporate Bond Monthly Income fund and the Vanguard EUR Government Bond ETF.

Within the alternatives part of the portfolios, the team has introduced hedge funds as an asset class within the asset allocation model, to replace UK property.

However, Quilter Investors said this was more of a procedural change, rather than on that has practical implications for fund positioning, as property funds have not been held by the portfolios for several years.

Furthermore, the Ardea Global Alpha fund has been added to the portfolios “given its ability to provide diversification as well as its income profile”.

Bradshaw and Cowan have also reduced the exposure to high yield bonds as they felt spreads had tightened recently.

They have been switching out of smart beta ETF holdings due to the mid-cap value tilt these came with, choosing instead to invest in broad market passives and make up for lost income elsewhere in the portfolio.

The BNY US Equity Income fund has also been added to the portfolios as a way to target companies outside of the large mega cap tech names and to introduce a discretionary active manager to the US lineup.

“As markets change and adapt, we too want to ensure the Monthly Income portfolios are optimised to their full potential, giving diversified returns and income streams to advisers and their clients,” commented Bradshaw.

“The income space is becoming a really interesting part of the investing world with innovative approaches being taken across asset classes.

“We continue to seek ways to give our investors the opportunity to access asset classes and funds that would perhaps be out of reach or where research is not as widely available outside of a multi-asset portfolio structure.

“As such, we are excited to see what our new emerging market debt and hedge fund exposure can bring to the return and income profile of the portfolios.”

Cowan added: “We have also taken this realignment of our strategic asset allocation as an opportunity to resize existing exposures and introduce some interesting new holdings.

“Given where markets sit currently, we wanted to increase the defensiveness of the portfolios. The value and small cap tilt in the range has been moderated in favour of larger cap holdings but there is still a bias there, as you would expect in an income fund.

“We believe this provides a more balanced portfolio that should perform well in a wider variety of market conditions while offering similarly attractive yields.”

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