Monday, June 18th, 2012

Multi Asset Model Commentary 18/06/2012

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

Market conditions

Last week we were treated to an orgy of political speculation, which led to virtually no change in the underlying portfolio or the dynamics of risk and return. The Greek and Spanish situations were as uncertain at the end of the week as they had been at the beginning. There was very little in the way of new information, so there was no pressing need to do anything. The soap opera now moves from Greece to Mexico and the G20. Stand by for more speculation.

Current positions

There are no significant changes to the portfolio this week. The order of preference remains the same: US Treasuries, US REITs, and investment grade credit are the largest three holdings. Given the lack of movement, we should take some time out to comment of the resilience of US REITs in the recent sell-off. Apart from one dreadful week in May, they have held up much better than emerging markets and commodities and have always enjoyed a better yield than US equities. For investors worried about the possibility of inflation, we continue to highlight the attraction of this asset class compared with TIPS.

Outlook

It is always possible that a co-ordinated programme of economic reform and bank recapitalisation and policy stimulus will be announced at the G20 this week. But somehow we doubt it. We note that the Bank of England did commit to a significant programme of loan support for small and medium-sized enterprises in the UK. Because it aims to address the transmission failings of the banking system, rather than flooding the gilts market with QE, the market impact was not that great. We rather hope that other central banks follow this example.

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