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World of opportunity

Recent months have seen valuations, particularly in equities, snap up to more reasonable levels in a rapid rally. It represents relief at the postponement of the end of the world.

In the short term, we expect volatility as the rally is digested but still believe equities are modestly attractive. In the longer term, we expect a combination of factors to push markets higher.

There is a range of opportunities across diversity of asset classes. We have prepared the equity component of our portfolios for a period of range-bound volatility prior to what we expect will be further market gains in due course.

There is now greater focus on blue-chip stocks in more defensive sectors such as pharmaceuticals, utilities and oils, which we believe have not participated as fully in the rally as other areas, have sustainable dividend-paying capacity and will be relatively insulated from the mixed economic news that we expect.

In the fixed-interest arena, our focus is shifting slightly to sub-investment-grade bonds, which we only hold through third-party specialist funds. This is due to higher yields and greater scope for capital upside. We still strongly prefer corporate bonds to gilts, which we believe to be generally overvalued, and to cash.

Our property holdings remain overseas. This area has benefited substantially from increased risk appetite, the closure of share prices towards net asset values and an element of corporate activity.

The alternative assets’ area is benefiting from renewed interest. A number of hedge fund of funds have or are expected to announce tender offers. We continue to maintain an exposure to traded life interests, soft and hard commodities. Recent results from areas of our venture capital portfolios have proven encouraging.

As a consequence of calmer markets, the very significant opportunities available in the structured product arena at the height of market volatility have reduced but the structured product portfolio is doing its job of providing defined returns with relatively low levels of risk and alternative exposure to particular asset classes.

Alan Borrows is lead manager of the Midas balanced income fund and co-manager Midas balanced growth fund

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