Strategic asset allocation update: Strategic changes to our Global Multi Asset Portfolios (GMAPs)

This summer, we updated our Global Multi Asset Portfolios (GMAPs) range and introduced four strategic changes.

When we launched the portfolios in 2016, we wanted to maximise the long run return after inflation at specific points across the risk spectrum. For this purpose, we offered open-ended funds with an approach consistent to the Royal London Governed Portfolios within the pensions wrapper.

We remain more broadly diversified than a typical balanced fund. As ever, we build on strategic asset allocation as the starting point, then implement our shorter-term tactical views.

Why are we updating our GMAPs range?

In our view, there is no such thing as passive in multi asset. We have an active and broad approach to diversification, seeking to improve risk-adjusted returns.

• We assess the strategic mix every year and make changes when required to reflect shifts in the valuation of assets, to improve resilience to emerging threats, and/or to include new asset classes
• We review tactical asset allocation positions on a daily basis with a view to adding value as the investment backdrop evolves
• We actively manage individual asset classes with the intention of adding additional value and/or to improve the ESG credentials

We believe that the choice of assets to include in a multi asset fund should always be an open question. We include physical property alongside equities as an alternative real growth driver, and commodities to hedge against unexpected inflation shocks. We are willing to keep bond duration exposure to a minimum in the fixed income portion of the funds when we feel yields are unsustainably low. Within equities, we tilt exposure away from the expensive US market towards the UK, where valuations are reasonable and resilience to inflation has proved better.

Chart 1: Global Multi Asset Portfolios (GMAPs) and Governed Portfolios (GPs)

Source: RLAM as at 30 June 2025. Capital at risk.

Introducing our strategic changes

Reducing US equity exposure on valuation grounds

In recent years we have been gradually reducing UK equities in favour of global equities (predominantly the US) to increase exposure to sectors with higher growth potential. These decisions have borne out with the artificial intelligence boom in full swing. This year, we took a small step in the opposite direction. US equities have bounced back from the initial tariff shock and are trading around 36x cycle adjusted earnings. Valuation is a poor short-term metric for timing markets, but on a five-to-10-year view, high valuations are a major headwind. In addition, the US market has a heavy concentration to a small number of tech stocks which have a common theme.  Country-specific risk under the second Trump presidency has risen significantly, posing a challenge to asset valuations and the dollar. With these factors in mind, we trimmed global equities moving the money back into the more reasonably priced UK market.

Chart 2: Stocks historically offer the best long-term returns, but US equities have a valuation headwind

Source: Bloomberg, LSEG Datastream and RLAM as at June 2025. Cyclically adjusted PE (Shiller PE) data from December 1981 to July 2025.

Adding to bond duration on higher yields

Academic theory says that government bonds offer investors a risk-free return. However, prior to 2022 we thought bonds were offering return-free risk. Yields on 10-year gilt closed at an all-time low of 0.04% in August 2020, five years ago almost to the day, with real yields below -2%. This meant that we were paying to lend the government money. Any sensible path back to an equilibrium level of yields was likely to result in capital losses and as a result, our strategic exposure to government bonds was low. The trigger for mean reversion came in the subsequent “spikeflation” shock, when an inflationary post-Covid recovery coincided with higher energy prices as Russia invaded Ukraine. Bonds prices fell (and yields increase), with gilts suffering further downward impetus in the short-lived Liz Truss premiership. When the dust settled in mid-2023, 10-year gilt yields were 4.5%, close to where we’d expect them to be in the long run, and real yields had swung into positive territory – with these currently trading around +2%. Government bonds are one of the few asset classes we now see offering good value and we have taken this into account in the changes to the GMAPs SAA first in 2023 and again in summer 2025, by adding to duration, with index linked gilts included as an inflation hedge.

Diversifying credit exposure on tight high yield spreads

Our multi asset funds employ a wide variety of fixed income strategies from global government bonds to investment grade corporates, and including global high yield. US high yield spreads over government bonds are at extremely tight levels (meaning they are low). We responded to this, and a desire to diversify further within fixed income, by reducing global high yield exposure in favour of two strategies, one investing in asset backed securities and the other in emerging market corporates. Asset backed securities offer attractive yield premiums over investment grade bonds with relatively low duration and strong structural protections. Emerging market credit provides exposure to high-quality issuers in fast-growing economies, with favourable spreads relative to their developed market peers. Both modest additions to the mix aim to broaden the opportunity set while maintaining a disciplined active approach to credit risk.

Chart 3: Government bonds are no longer “return free risk” – but credit spreads are tight

Source: LSEG Datastream as at 21 August 2025.

Reducing property exposure in higher risk funds

UK commercial property is an important diversifier within the growth-seeking part of the funds, with a direct link to UK inflation through the rental income that the assets are valued against. Property total returns kept pace with equities between 1987 and 2022, only to suffer a sharp drop in the mini-budget crisis. The market is recovering, and property continues to offer decent valuations. The changes we made this summer have been to reduce property at the high end of the risk spectrum to offer a more graded progression of asset class exposures as the funds are considered across the risk spectrum with the pure equity fund at the top of the range. Reducing property in the funds with highest exposure also reflects investor preferences for limited exposure to illiquid assets in open-ended funds.

Chart 4: Property continues to offer decent valuations as the market is recovering

Source: LSEG Datastream as at 21 August 2025.

We remain more broadly diversified than a traditional balanced fund. We believe that broader diversification enables greater resilience and allows us to focus on risk-adjusted returns. The new strategic asset class weights are presented in the appendix below.

Chart 5: Broader diversification brings greater resilience and focus on risk-adjusted return

Source: RLAM as at 30 June 2025.  * Includes UK, global and short-dated exposures.

As ever, we build on the strategic asset allocation as the starting point, then implement our shorter-term tactical views. We are currently modestly overweight equities including an overweight in the US which slightly counters the strategic change.  We remain short the US dollar and long gold.

Chart 6: Where we stand: Overweight global and Japanese stocks, growth sectors and gold – Underweight European equities, Energy sector and US dollar

Source: RLAM. Tactical positions as of 22 August 2025.

Appendix:

Source: RLAM as at 30 June 2025. 

Source: RLAM as at 30 June 2025. 

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.