Brewin Dolphin : The importance of reviewing and rebalancing your portfolio

Investors should review and rebalance their portfolios on a regular basis to prevent overexposure to a particular sector or region. This is all the more important following periods of particularly positive or negative performance, or following the introduction of new regulation or legislation which could impact certain sectors as a whole. Elaine Coverley, equity analyst at wealth manager Brewin Dolphin comments:

"Equities have continued to perform well this year, and we remain overweight in terms of our overall asset allocation. Even those sectors which we have downgraded offer some interesting opportunities if selected carefully. However, recent political and regulatory changes, particularly following the dispute over energy prices and new measures introduced by the Budget, mean investors should review their their sectoral exposure and upgrade or downgrade their holdings where necessary."

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• Utilities: Following a low in January, the outlook for the Utilities sector is improving. This is partly driven by the recovery in Centrica and SSE as the political risk becomes priced in, and helped further by the recovery in the water stocks as Ofwat's regulatory review provided some clarity. That said, investors should consider the possible ramifications of Scottish independence, which could result in stranded generation and network assets.
• Retail: As the UK consumer seems to be at the beginning of a multi-year phase of growth, the outlook for General Retail looks positive and we are pleasantly surprised by improving sales growth. This is particularly true of Kingfisher and Next, tellingly the sector's two largest components and whose earnings growth should be strong. On the other hand, we retain some caution since the sector's valuation relative to its history remains high.
• Mining: Although the secular bull cycle is over, commodities and companies could benefit from a cyclical rally, which is not completely impossible. The higher quality miners have improved capital discipline, cut capital expenditure and are now free cash flow positive. Yields for these companies are beginning to look attractive (e.g. 3.5 - 4.0% for the higher quality major miners), are well covered, and are likely to grow, which will appeal to those looking for income.

• Pharmaceuticals: The recent rally has been driven largely by AstraZeneca which has seen increased optimism for its pipeline assets, particularly in immune oncology, but it cannot demonstrate the depth of experience or resources of its competitors in this area. The strong outperformance of Shire has also contributed to the rally. With the sector now trading at over 15x and the market on c.13x with higher growth prospects, the short term growth outlook is poor and indeed negative for this year.
• Life Insurance: Although the sector has a number of strengths (good dividends, improving cost control and good growth in some cases), we are downgrading it due to relatively full valuations and the unknown impact of the Budget changes. In addition, the sector may come under added Government and regulatory scrutiny, particularly if further actions are seen as potential 'vote winners' as we have seen with the utilities sector.

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