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Asset Allocation Research for UK Advisers

Active vs Passive: A Bright Spot for UK Small Caps

23/5/2025

 
Two Boxers Fighting to symbolise Active vs Passive: A Bright Spot for UK Small Caps
We look at the latest data from the SPIVA® Europe scorecard and key findings.  UK Small Caps are one of the few bright spots.

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Active vs Passive Investing: The Trillion Dollar Switch

18/3/2025

 
ICI Factbook 2014, Fig 3.9
Over $2.5 trillion has been switched from actively managed to index-tracking funds.  What does this mean for providers?

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Why use an “Equal Weight” index fund or ETF?

21/2/2025

 
In this article we contrast traditional market-cap weighted index with an Equal Weighted index. 
Abstract Blue Orange and Yellow Mosaic to represent the article outlining why use an EFT

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2024 investment review

3/1/2025

 
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[5 min read, read as pdf]
​
  • The US economy outperformed expectations
  • The long-awaited pivot came through
  • Portfolio resilience proved key

As we look forward to 2025, it is worth revisiting the themes and predictions of our 2024 outlook “turning the corner” to get a sense of what we anticipated at the time, how this informed our recommendations to UK adviser firms’ investment committees.  Asset class performance for 2024 is summarised in the chart above.  Our 2025 outlook is published separately.
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Steady as she slows
In 2024, we anticipated a gradual deceleration in the U.S. economy, with markets pricing in the likelihood of a slight recession. In the event, the U.S. economy surprised on the upside. Growth forecasts were upgraded from 1.15% at the start of the year to an impressive 2.6% by year-end. This revision supported robust equity market returns and served as a reminder of the resilience of U.S. economic fundamentals.  In summary, a resilient US economy defied expectations.
What did we recommend to our clients at the outset and during the year? We took a balanced view between accepting concentration risk (traditional S&P 500) and diversified (active, sector exposures).  We also recommended clients lean in to broader US equity corporate landscape via 1) Equal Weight and 2) US Small Caps exposures.
By contrast, the UK had that shrinking feeling as regards economic growth, and although out of a technical recession, we are not confident of its prospects relative to the US.

Pause before pivot
At the close of 2023, we were focused on the Federal Reserve’s pause in interest rate hikes, noting that a rate cut was a question of when, not if. While the consensus view was that the first cut would be announced by mid-2024, we anticipated that the timing would hinge on the performance and strength of the U.S. economy. Indeed, the economy’s resilience delayed the start of what we anticipate to be a rate-cutting cycle to September 2024, when the Federal Reserve finally delivered a significant 50-basis-point cut.
In fact, the eventual BoE Fed pivot came a month or two later than we had estimated at the start of the year, but we recommended our clients remain dynamic with regards to duration management.  We recommended clients go strongly overweight duration in June as a good time to extend duration ahead of BoE cuts, with Fed following suit, and we saw the additional duration deliver returns on the bond side of the portfolio before attention shifted to debt supply and the UK budget later in the year, which led us to recommending to move back to neutral.

The importance of portfolio resilience
Our focus on resilience proved vital when it came to navigating the key macro factors in 2024: Growth, Inflation and Interest Rates.
For Growth, anticipating a soft landing for the US economy, we highlighted the potential outperformance of cyclical sectors, and momentum, yield and size factors. In the event, momentum emerged as the best-performing factor, with yield and size also delivering strong returns. For Rates, we adjusted duration exposure mid-year to capture the effect of falling policy rates, aligning portfolios with a changing interest rate environment. For Inflation, which remained above target, the inclusion of liquid real assets (but to a lesser extent than in 2022) and shorter duration inflation-linked bonds, ensured continued portfolio resilience.  We continue to emphasise the importance of a diversified alternatives exposure from a correlation perspective, not just in name.
Our recommendation to consider Private Market Managers and Gold & Precious Metals paid off during the year – as these were the best performing asset classes for the year, outperforming world and US equities.

Political and Geopolitical risks
In a year of elections, we saw a change in government in the UK and in the US following Trump’s Presidential win.  Both have a greater impact on bond yields and currency dynamics than equity markets, in our view.
Geopolitical risks remain elevated with the Russia-Ukraine war continuing to grind, escalating conflict and contagion in the Middle East – all at tragic human cost.

Conclusion
Markets did indeed turn a corner in 2024, with economic growth, earnings and equity market returns outperforming expectations.  With 2024 in the rear-view mirror, it’s time to look ahead to 2025.  Our 2025 outlook is published separately.

Henry Cobbe, CFA
Head of Research, Elston Consulting

Sterling gaining strength

30/9/2024

 
Picture
  • Recent US & World Equity gains have been offset by sterling strength
  • Higher relative rates provide support
  • Consider mitigating near-term currency risk
Contact us to access the full report

UK rate cuts: duration delivers

16/8/2024

 
Picture
  • Bank of England rates peaked at 5.25%
  • As interest rates decline, bond values increase
  • Longer duration bonds deliver in a falling rate regime
Read full article

PLATFORMS SLOW TO ADOPT FRACTIONAL TRADING

21/3/2024

 
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Mainstream platforms have been slow to adopt fractional trading.  This has hampered the adoption of ETFs within MPS.  With many more index funds available, it's become less of an issue, according to Henry Cobbe, Head of Research at Elston Consulting.
Read the full article in ETF Stream

rising star: jackie qiao talks etf selection

4/3/2024

 
ETF Stream interviews up-and-coming fund selectors about breaking into the industry, how experiences have shaped their investment approach and their biggest influences in investing and beyond.

Read in full

ARE ACTIVE MANAGERS IMPROVING?

9/12/2022

 
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[5 min read, open as pdf]
  • Active managers in aggregate underperform the benchmark
  • Past performance is not indicative of future performance
  • Potential for outperformance declines with time 
For more on this topic
CPD Webinar: Is Active Management a Zero-Sum Game?

Alternative approaches to equity diversification

25/11/2022

 
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[5 min read, open as pdf]
  • Regional equity allocation is starting to look dated
  • Sectors, factors and themes offer an alternative approach
  • These offer greater potential for returns dispersion
For full article, open as pdf

CHINA: light at the end of the covid tunnel?

18/11/2022

 
Picture
[3 minute read, open as pdf] 
  • Covid restrictions in China have choked off growth
  • The government has recently moved to relax regulations
  • Chinese equity markets have rallied as a result

China: light at the end of the Covid tunnel?

17/11/2022

 
In this article for IG, Hoshang Daroga CFA, Investment Director at Elston Consulting, looks at the easing of Covid-19 restrictions in China.
Read in full

US “equal weight” index proved defensive

17/11/2022

 
In this article for IG, Henry Cobbe explores looks at an alternative approach to US indices.
Read in full

US EQUAL WEIGHT PROVED DEFENSIVE

11/11/2022

 
Picture
[3 min read, open as pdf]
  • Concentration risk is a choice, not an obligation
  • An equal weight approach reduces stock and sector biases
  • This has proved defensive in 2022 market stress

Big tech marked down: time to buy?

2/11/2022

 
In this article for IG, Elston's Jackie Qiao explores opportunities in the tech sector.
Read in full

Energy is getting dirtier before it gets cleaner

27/10/2022

 
Picture
[3 min read, open as pdf]
  • The European coal market has been tight
  • Extending or restarting coal-fired plants is quickest fix to supply
  • Coal consumption is at record high in 2022
For full article, open as pdf

Energy: dirtier before cleaner

27/10/2022

 
In this article for IG, Elston's Andrea Acimovic explores the paradox of the clean energy revolution.
Read in full

Gold’s appeal in times of stress

25/10/2022

 
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In this article for IG, Jackie Qiao, Head of Fund Research at Elston Consulting, discusses the value of holding gold in times of market stress.
Read in full

Investing for a sustainable future

24/10/2022

 
In this article for IG, Elston's Andrea Acimovic explores opportunities in the ESG space.
Read in full

Are bonds back?

24/10/2022

 
In this article for IG, Hoshang Daroga, CFA, Investment Director at Elston Consulting, explores whether and how to add back bond exposure.
Read in full
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© COPYRIGHT 2012-25. ALL RIGHTS RESERVED.
 Elston Consulting Limited (Company Registration Number 07125478) is registered in
England & Wales, Registered address:  1 King William Street, London EC4N 7AF
  • WHO WE ARE
    • About
    • Our Journey
  • WHAT WE DO
    • Elston Portfolios >
      • Our Portfolios
      • Adaptive Portfolios
      • Retirement Portfolios
      • Sustainable Portfolios
      • Multi-Asset Income
      • All Weather Portfolio UK
      • Money Market Portfolio
    • Custom Portfolios >
      • Custom Portfolios
    • CGT Solutions >
      • Our CGT Solutions
      • GIA Portfolios
      • Onshore Bonds
      • Direct Gilts
    • Adviser Support >
      • Our Adviser Support
      • CIRP
      • Investment Committee Support
      • Regulatory Support
      • Analytics, Factsheets & Reporting
      • CPD
    • Fund Solutions >
      • Our Funds
      • Custom Funds
    • Index Solutions >
      • Our Indices
      • Sector Equal Weight
      • UK Equity Income
      • Liquid Real Assets
      • Gold and Precious Metals
      • Custom Indices
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
  • Insights
  • Contact