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Christows wary over growing correlation

The increasing correlation between asset classes could hit fund of funds managers using a multi-asset approach if markets fall, warns Christows.

The firm says multi-asset portfolios have become popular since Ucits III has enabled funds to hold different asset classes.

Head of fund research Dan Kemp says: “The reason why everyone likes multi-asset classes is that they are meant to have low correlation but everything is moving upwards. The problem in the short term will be if this correlation persists when markets start falling. It is all going to fall out of bed.”

Other multi-managers think it is unlikely that increasing correlation will impact negatively on multi-asset portfolios.

Insight co-head of multi-manager Patrick Armstrong says: “I agree that correlation is increasing and this is because everyone is trying to get a return in excess of cash when yields are low. Commodities are performing well at the same time as equities, which is going to have a negative impact on equities at some point.

“But there are some strategies that are not just benefiting from beta, such as directional bond funds. Also, if you look at gold prices in sterling terms instead of the dollar, which is weak, the figures look less dramatic.”

Abbey head of multi-manager John Kelly says: “Asset classes are dynamic but always carefully balanced. Emerging markets, for example, have become more acceptable but they still only have 80 per cent correlation to other markets. Bonds are 50 per cent correlated while cash has no correlation. Now multi-managers have access to Japanese real estate and hedge funds, the range of investments will become wider still.”


Half of FTBs pay stamp duty

Only half of first-time buyers avoid paying stamp duty despite the threshold being more than doubled over the last two Budgets. The Council of Mortgage Lenders found that 50 per cent of first-time buyers and 80 per cent of all people moving pay stamp duty despite Chancellor Gordon Brown raising the threshold from 60,000 to […]

Fund firms braced for correction

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Ron Sandler unveiled as Paternoster chairman

Ron Sandler has been signed up as chairman of closed life fund consolidator Paternoster.Sandler, current chairman of financial education charity PFEG and former chief executive of Lloyd’s of London, takes up his position with immediate effect. He is also currently chairman of Computacenter, Kyte Group and Oxygen.Paternoster, led by former Prudential UK chief executive Mark […]

Remortgage decline could signal demise of rate tarts

The Council of Mortgage Lenders has revealed a drop in remortgages. Data for March shows that remortgaging accounted for 36 per cent or 10.3bn of lending which is 5 per cent less than in February and 10 per cent lower than March 2005. Despite the fluctuations, the CML says remortgaging remains a significant part of […]

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