Portfolio Positioning and Market Outlook - Q4 2010

The BGF Global Allocation Team seeks to deliver competitive rates of return with moderate levels of risk. Since launch, the team has achieved that objective by investing in a highly diversified range of equities, fixed income and cash equivalents. This diversification is particularly critical during periods of market volatility.

In the latest Portfolio Positioning Update from the Team they comment on:

  • The Global Economy - The global economy appears to be in the midst of a broad economic recovery with developed markets seeing improvements in manufacturing and employment, while growth in emerging markets continues.
  • US Equities - Despite the Team's cautious view on the US economy, they have increased their US equity weighting, which is now at one of its highest levels in nearly seven years. The Team believes that the path to a full economic recovery in the US remains fragile. They believe the US will continue to experience inconsistent growth spurts as cyclical policy initiatives clash with structurally high household debt levels and a weak housing market.
  • European Equities - Economic performance in core Europe continues to be better than expected with a rebound in German manufacturing leading to strong GDP growth and an unemployment rate that is lower than at any point in 2008 during the depths of the financial crisis. European equities offer some of the most compelling valuations in the world.
  • Emerging Markets - The Team is has tactically reduced some positions on price strength, but does not regard current price levels as overly excessive and continue to be overweight a number of emerging markets in Asia and Latin America. The Team believes that the fundamentals remain supportive of emerging markets continuing to lead the global economic recovery. The Team is also finding opportunities to gain exposure to emerging market growth indirectly through companies that generate a significant portion of revenue in emerging markets.
  • Global Fixed Income - The Team is underweight fixed income as a whole. They believe that Europe’s sovereign debt problems, which were widely publicised over the course of 2010, remain an issue of great importance. In Asia, the Team remains underweight fixed income, due largely to their minimal exposure in Japanese government bonds. In the US, potential inflation and the federal deficit have led the Team to remain underweight in US Treasuries.
  • Cash Equivalents - The Team believes that as uncertainty surrounding the European debt crisis and policy tightening in emerging markets means cash will continue to provide necessary downside protection against potential.
  • In aggregate, the Team believes diversification and tactical rebalancing will prove helpful in navigating the environment and moderating volatility.


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