Despite the rally, AFI panellists see little need for changes to asset allocations or risk. Ben Willis, head of research at Whitechurch Securities and an AFI panellist, says: “This could be a bear market rally. We positioned our portfolios quite early into fixed interest and those positions will be maintained, though there may be some movement on the equity side.”
The fixed-interest allocation in the balanced portfolio inc-reased from 19 to 21 per cent in November and in the cautious portfolio from 35 to 37 per cent – the portfolio’s biggest weighting. There is still value in corporate bonds, argues Willis, despite their recent boom. “We will be playing this asset class for maybe 12 months.”
David Wynn, investment director at RCM Bentley Jennison Financial Management and another panellist, says: “The big macro trade last year was out of commercial property into investment-grade corporate bonds. When markets recover, we may revisit this and flip back into commercial property.”
Wynn adds that the portfolios are “enjoying the rally in commodities and European emerging markets”. Meanwhile, he notes that multi-manager vehicles have been well positioned for short-term volatility. “They protect on the downside but are nimble enough to deal with a very severe, very stressed env- ironment. The model portfolios have more multi-manager funds at the moment and that is a defensive play.”
The two most popular funds in November’s rebalancing were Asian offerings, and Willis favours more moves in that direction. “China is looking resilient and strong and there may be an indirect play there, for instance, through an Asia-Pacific fund.” However, he says a key move may be away from Japan: “Considering the strength of the yen, there is a tremendous currency risk.”
According to Wynn, rather than adjusting risk within separate portfolios, RCM Bentley Jennison has found that many investors are recategorising their own priorities. “A lot of new business opportunities for us have been people who have not understood the risk inherent in their investment portfolio. For instance, they have not fully understood what balanced investor means and are actually more of a cautious investor.”
A change in the investment climate appears to be some time away and the rebalancing will see advisers finetuning the adjustments of 2008 rather than preparing for a new era.
Brian Dennehy, managing director at Dennehy Weller, says: “Sadly, most investors will only feel emboldened when the FTSE 100 is back through 6,000 and heading back towards all-time highs, which feels like a year or two away at best.”