As far as equities go, last year was a downhill ride for all regions although clearly some slopes were more vicious than others. In sterling terms, emerging markets had the worst time and Japan the best.
Each year we carry out our Best of the Worst, Worst of the Best survey and every year it tells us a very similar story. The best fund in the worst region usually underperforms the worst fund in the best region. It is a powerful reminder to multi-managers of the importance of asset allocation. Many of our critics assume that we are simply fundpickers but in T. Bailey’s case, we have found that we deliver as much value from asset allocation as from expert fund selection.
Our approach is to start with a strategic asset allocation view – taking a considered outlook of longer-term global trends. We overlay this with tactical asset allocation – making short-term calls in anticipation of and in resp-onse to changing sentiment and market movements.
We have just completed our review of the strategic asset allocation of the T. Bailey growth fund. This has proved quite timely in the light of events of the last 18 months.
To this end, we are increasing the strategic exposure to the US from 15 per cent of the benchmark asset allocation to 25 per cent, reflecting our “first in, first out” sentiment around the region.
We are reducing the strategic exposure to the UK from 40 per cent to 25 per cent where heavy Government and personal indebtedness and the weak balance of payments numbers all suggest that the hangover resulting from our decade-long affection for cheap credit will be painful.
We anticipate that the fundamental weakness of the developed world will accelerate the ongoing transfer of power to the East. So we are increasing our emerging markets bias, increasing the strategic asset allocation slightly to 17.5 per cent.
If there is a lesson for multi-managers in our Bowwob research, there is also one for advisers. A good fund of funds can deliver more than just fund selection. It can offer your clients active management, diversification and, crucially, asset allocation.
This is a busy time of year for most advisers and clearly asset allocation is an important concern when recommending products for clients. It should be reassuring to know that it is an important concern for multi-managers too. It is one of the reasons that good multi-manager funds make ideal core investment vehicles for many portfolios.
Elliot Farley is assistant fund manager at T Bailey