AJ Bell funds rebalancing

The AJ Bell funds are managed by the team at AJ Bell Investments, with one aim: helping you invest. We look after the funds, and make the daily decisions to keep your money working hard for you.

That means, from time to time, we’ll make updates to the funds in response to differing market conditions. In this article, we’ll take you through the recent changes we’ve made to the asset allocation of the AJ Bell funds.

2024 market outlook

2023 felt like an especially uncertain year, as the world coped  with the consequences of the pandemic and inflation. But despite the sombre mood, most stock markets performed relatively well and rewarded the more adventurous investor for the pain of 2022.

It was a mixed year, though, for slightly more cautious investors, who allocated more to bonds in the hope that interest rates had peaked, and 2023 would prove to be the ‘year of the bond’. But interest rates were marched higher still by central banks to combat inflation, which weighed on bond prices, albeit with some respite towards the end of the year.

Heading into 2024, there’s plenty to look forward to, even though the global economy appears to be weakening further. Savers are now earning the highest rates of interest for over a decade, inflation is abating, and wages are finally growing faster than prices. With this in mind, we’ve repositioned the funds to take advantage of some of the opportunities we think are available.

The funds’ positioning

Cash is an interesting asset, given where interest rates are. In 2023, the lower-risk funds had a relatively high weighting to cash, which we’ve increased this slightly this year. There’s no telling how long these cash interest rates on cash will be available, but it currently pays to be patient.

In 2023 the funds benefitted from their allocation to risker bonds (high yield), which investors were attracted to following an increase in yields the prior year. For the funds that allocate broadly to bonds, we’ve trimmed the exposure to high yield for 2024. This is because we feel the additional return for holding these bonds relative to safer government bonds doesn’t match the potential risks (such as company failures). Instead, we prefer higher-quality bonds such as those issued by the UK and US government, and very large and stable companies. If the economic environment worsens, these investments should perform better than riskier bonds.

Turning to shares, the allocation remains broadly unchanged going into 2024. However, we’ve rotated towards what look to be pockets of better value in Europe and Japan. This in turn reduces the weighting to US stocks and the ‘magnificent seven’ that performed so well for much of 2023: Apple, Amazon, Tesla, Nvidia, Microsoft, Meta (formerly Facebook) and Alphabet (formerly Google). Though we hold no specific negative view of these large US stocks, our long-term approach to valuing asset classes forces us to reappraise the positioning in the US after such a good year.

Finally, the small weighting towards alternative investments, currently commercial property, has been tempered. That’s because bonds yields and cash are offering a comparatively better prospective return for the level of risk taken.