Article last updated 22 July 2025.
“The correction we are seeing is due to strong US growth and concerns about a pick-up in wage inflation, fuelling the prospect of interest rates rising faster than forecast. In many respects, markets had been too calm for too long, so some volatility was and is to be expected, said David Coombs, who manages the £766.55m* Rathbone Multi-Asset Portfolios with assistant fund manager, Will McIntosh-Whyte.
“However, yesterday a sub plot also developed with bonds and equity investors debating whether the new chair of the US Federal Reserve, Jay Powell, will be slow to react to a-pickup in wages, causing the bond and equity markets to lose confidence in central bankers, exacerbating the situation. But we are not looking at another 1994 bond market massacre.”
In the early part of 1994, bond markets sold down aggressively as the Fed tightened rates surprisingly quickly to curb a rise in inflation. Equity markets followed suit, but as economic growth remained robust, they finished the year higher.
“Although it is highly likely that this set back could well run on, as traders adjust positions and investors sit on the side-lines, there is nothing right now to suggest that this is any more than a response to over-stretched markets, where valuations in certain areas were looking strained. Providing growth and earnings continue to come through in the next few quarters, then markets should remain resilient and move ahead.”
Coombs believes the current strategy, which avoids high debt-to-equity stocks, should hold the portfolios in good stead.
“We have been in the higher inflation camp for nearly two years and are positioned accordingly, but we do not think the Fed will change its course on interest rates too drastically.”
He is using current weakness to add to positions in structural growth stocks, such as Alphabet and Eurofins.
“We still have plenty of powder dry if equities or credit, for that matter, fall further. We are not trying to market time; instead, we are continuing to follow our investment process. Clearly, we are not immune to a correction, particularly when bond yields are rising at the same time as equities fall (think taper tantrum), but we are backing our conviction.”
Since the start of the year, Coombs has been buying portfolio protection in the form of S&P 500 put options and has been holding higher levels of cash.
“We have added to gilts and still hold Australian and US government bonds, and we have very little credit exposure. We have reduced our hedge out of the US dollar and remain predominantly hedged out of the yen and euro.”
*as at 31st January, 2018
For more information, please contact:
Madhu Kalia
Intermediary PR (UK/Europe)
Rathbone Unit Trust Management
020 7399 0256
07825 596302
madhu.kalia@rathbones.com
Sam Emery
Quill PR
020 7466 5056
sam@quillpr.com
