Seneca Cuts Equity Exposure In Preparation For 2020 Market Downturn

Seneca Investment Managers CIO Peter Elston

Seneca Investment Managers CIO Peter Elston

Seneca Investment Managers has been reducing its equities exposure in preparation for the end of the bull run in the asset class.

Allocations to equities now stand at 38% for the Seneca Diversified Income fund, 56% for the Diversified Growth fund and 58% for the Seneca Global Income and Growth Trust, the firm said.

The equities sold have been moved into specialist assets and short-duration high yield bonds, which the firm said provided inflation protection and offered attractive yields.

Peter Elston, CIO of Seneca IM, said he expects the bull run in equities to end in 2019, while predicting an economic downturn in 2020, but warned it was important to be prepared "well in advance".

The CIO predicted equity markets to remain positive in the short-term during the current period of tightening monetary policy across the world.

The Federal Reserve has already embarked on a rate-raising cycle and has started tapering its $4.5trn balance sheet, while the market has priced in an 84% chance of the Bank of England hiking rates in November.

Elston said: "Many investors are holding off from reducing risk, presumably waiting until the bull market has ended, but we do not think that is the right approach.

"To be protected when the markets turn, you need to taper your risk ahead of that change.

"We have created a framework to reduce our risk exposure gradually over time to avoid the need for drastic asset allocation changes once the market does turn.

Managers warn unwinding European QE could burst 'the mother of all bubbles'

"Our time frame is a very broad estimate and it is likely that the market changes will not occur when we expect them to. This is why we are taking action early: we feel in this situation it is the ‘what' that matters, not the ‘when'."

About the author

Tom joined Investment Week in August 2016 as an asset management correspondent covering the ETF beat.

Outside of the office he is a keen cricket, football and boxing fan and runs his own sports website. 

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