I run a bunch of online robo accounts, mainly to see how they adapt to changing markets – and see who provides the best returns. Call me old fashioned but if I am going to pay for clever algorithms and robots to build my financial future, I want to know that the asset allocation process actually delivers added value.

One of the more interesting players in this digital wealth space in the UK is IG who run their portfolios using  BlackRock’s ETFs and their Aladdin asset allocation overlay.

Obviously there’s an internal overlay but any changes in the portfolios obviously find an echo in the way that BlackRock thinks about the world. So, it’s with interest that I got an email today suggesting new allocations which are in turn based on worries about market volatility.

Heres the note to customers:

This offers an attractive moment in which to reduce some of the risks within the portfolios. Another ‘flare up’ in volatility is a possibility, with slowing global economic momentum likely to lead to lower corporate profit growth.

While becoming more cautious in the short term, equity markets won’t necessarily fall from here. Research from BlackRock shows that it really takes falling earnings plus an economic contraction to a trigger a bear market; the latter event not being their base case.

Within the portfolios we have trimmed equity exposure, increased exposure to longer duration bonds, and increased the weighting in overseas currency to cushion against possible sterling weakness. This has partly been achieved by purchasing US dollar government bonds, which have the benefit of offering a decent yield while facing far less uncertainty than Brexit-focused UK gilts.

Changes to your portfolio
Where appropriate we have made the following adjustments to the four multi-asset risk profiles (moderate to aggressive portfolios), rebalancing other positions back to their optimal weights.
Cut exposure to the cash-like iShares GBP Ultrashort Bond ETF (ERNS) and 0-5 year UK Gilt (IGLS), deploying the proceeds into longer dated gilts (IGLT) and both short and medium term US treasuries (IBTS and IBTM)
Rotated from iShares MSCI Europe GBP Hedged (EUXS) to the unhedged equivalent (IEUX) and sold the position in iShares Core MSCI Japan (SJPA)
Added to iShares Core MSCI Emerging Markets (EMIM), while selling Asia Pacific equities (CPJ1)
Reduced exposure to iShares Physical Gold in the Growth and Aggressive profiles