Tuesday, April 24th, 2012

Multi Asset Model Commentary 24/04/2012

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

Market conditions

Elections and coalition breakups continue to dominate the news in Europe, but the recovery in the rest of the world rumbles on. The pace is not impressive, but the direction is reasonably clear. The yield on US government bonds remains far too low to help build a retirement nest egg, so investors are forced to take risk. Despite the sell-off in equities over the last few weeks, risk conditions are better than they were in Autumn of last year, but at the same time not complacently or unusually low. For the moment there is no pressing reason to reduce risk exposure.

Current positions

The largest single position is accounted for by US equities, with emerging markets in second place. Commodities remain out of favour because of question marks about Chinese growth. Corporate bonds offer slightly better yields than government bonds, but not enough to get excited about. The model continues to suggest that REITs are the best way to gain exposure to income-producing assets, but this does come at the expense of much higher volatility than traditional bond portfolios.


Risk assets (equities and commodities) now account for some 85% of the total portfolio, which is much the same as it has been for the last weeks. There is not much scope for this to increase; indeed it would conform to a normal seasonal pattern if this was reduced over the summer. The big story will be whether emerging market equities can take over the running from the US. It goes without saying that this can only happen if the US continues to perform well.

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