Monday, May 14th, 2012

Multi Asset Model Commentary 14/05/2012

(This commentary was written originally specifically for the US Dollar Multi-Asset Model)

Market conditions

In contrast to the sterling global equity model, the US multi-asset model remains robustly pro-risk. The profit warning from JP Morgan has had an effect; how could it not? But the main result has been to prompt a move into US real estate. Apart from the case of US REITS, excess volatility is no longer falling, which means that risk assets no longer get an easy run jumping ever lower hurdles. For the US investor there is a clear split between onshore and offshore assets. US real estate, equities and corporate bonds continue to enjoy good momentum, but commodities and emerging markets don’t.

Current positions

US equities still represent the largest holding in the portfolio, but second place now belongs to US real estate rather than emerging markets, which are now in third. The increase in real estate is funded pro rata by the reduction in US and emerging market equities. There is no significant change to the holdings of commodities or bonds (US government and corporate).


Last week we said that the big question was whether emerging markets could take over from US equities as the summer progressed. It looks as though this has already been answered, but in the negative. Poor Chinese data has depressed the outlook for commodities as well. Maybe we shall have to add the PBOC to the list of Central Banks wishing to relax policy over the summer. None of this makes bonds look attractive given their ultra-low yields, but we should also expect the rotation between risk assets to speed up as well.

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