Asset Allocation
Asset allocation in difficult market conditions

Our asset allocation strategy differs significantly from many of our competitors who in many instances are simply concerned with beating an index.  Instead we focus our asset allocation strategy on preserving investment capital, controlling risk and delivering positive returns.  

Fixed Income
Traditional Fixed Income investments form an important building block in portfolios that seek to protect capital or to generate income.  We have conducted research into how to enhance bond yields without significantly increasing overall portfolio risk. This has resulted in the inclusion of an element of high yield and emerging market debt in our fixed income portfolios.

Equity Income
Although we expect a very difficult macro economic environment for years to come, we continue to believe that the patient investor will be rewarded for the risk taken.

With world stock markets working their way through an extended consolidation following the peak in 2000, patience will be required. In the meanwhile share prices may still be subject to extensive volatility.

In this sense the worldview looks very similar to that of the early part of the previous century:

• Many stocks yield more than government bonds
• Inflation is low
• Economic growth is low and struggling

Unlike what happened throughout the 1980s and 1990s this suggests that income will constitute a greater portion of total stock market returns.  Historically dividends have represented up to two thirds of the total return achieved on equities.

Our equity allocation process therefore, generally, focuses on equities and equity managers producing above average income returns. In the uncertain environment this approach increases the probability of positive returns whilst reducing the overall portfolio volatility. Thereby reinforcing our principle of capital protection.

Alternative investments
Since 1995, several years before the stock market peaked, we began using alternative investments as a substitute for traditional equity investments.  Such alternative investments are run by fund managers who focus on generating positive returns regardless of the prevailing market conditions and will in many cases have a significant amount of their own money invested in the funds they manage.

As opposed to traditional funds, which are generally concerned with providing a relative return or beating an index, absolute return funds seek to generate positive returns under all market circumstances.

The inclusion of such alternative investments has enabled our investment portfolios to withstand the downturn in world equity markets.  We continue to emphasise such alternative investment strategies where appropriate.