Asset Allocator recently broke break with John Husselbee who runs the Liontrust multi-asset range.

The bread in question was accompanies by some very nice wine and Huss revealed that he has been pondering the implications for his portfolios of inflation staying higher for longer.

He believes inflation between zero and 2 per cent, which was witnessed in the decade after the financial crisis, will be replaced by a return to what he believes is the more typical 3-4 per cent range.

With that in mind, Husslbee believes there will be a broadening out of the returns available to investors, rather than the previous circumstances where only a handful of US stocks delivered much for investors. 

One area he has become more interested in is small caps. Husselbee says economies are likely to avoid recession as policymakers can cut rates if needed.

Over the course of his career Husselbee has begun to use more passive instruments, he says, than when he started out.

He said: “Passives were much less attractive than now because they were not always cheap. I certainly remember passives being 50 basis points and so not an attractive option. Right now we use passives where the right option exists, and otherwise use active funds, for example, with the smaller company exposure, we don’t feel we can get that with a passive.” 

More broadly on equities, Liontrust are keen to own what might be called quality growth, rather than the out-and-out growth which thrived during the period of very low interest rates. 

That points them in the direction of, among other funds, Hugh Yarrow’s Evenlode Income. 

Husselbee is in good company with that call, since it’s one of the very most owned mandates among the allocators we cover, appearing in 11 portfolios. 

When it comes to alternatives, Husselbee says the bar is quite high for those to appear in a client portfolio now, because they are essentially competing with higher bond yields.

Where he believes this has changed the game is that the alternatives he owns are either return-generating assets or volatility-dampening assets, and since government bonds are now capable of being both of those things it makes it somewhat more difficult to own alternative assets. 

When it comes to US exposure in a world where returns are broader based, Husselbee is focused on market cap weighted strategies, enabling him to stick with passives, but not be overweight the type of growth stocks of which he is wary right now.