Portfolio Positioning and Market Outlook - Q2 2010
One of the BGF Global Allocation team's overarching goals over time has been 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, bonds and cash. This diversification is particularly critical during periods of challenging equity markets: the aim is to offer investors a better level of downside protection than if they were to invest in an all-equity portfolio.
In the latest Portfolio Positioning Update from the Team they comment on:
- Recent volatility - the Team feel that it is important for investors to use price as their primary determinant in making investment decisions at this current time. They feel that large-cap, high-quality, dividend paying equities remain the asset class of choice when compared to long duration government bonds and cash.
- Emerging market economies - Emerging market equities outperformed developed market equities in Q2 2010. This may suggest investors are looking at recent volatility as a potential entry point for long-term investment.
- Favoured sectors - the Team favour defensive areas such as healthcare and telecom services along with the energy sector where recent headline risk surrounding the BP oil spill and potential drilling moratoriums have provided and attractive entry point into the sector for long-term investors.
- Emerging Asia - while several countries in emerging Asia have continued to tighten monetary policy over the course of Q2 2010, the Team believe this region remains the centre of global economic growth. The Team currently view Japanese equities as an indirect way to benefit from a continued strong economic backdrop in emerging Asia.
- US government bonds - despite the recent outperformance, the Team remain cautious on the asset class in an environment of heavy government borrwing, renewed investor concern about double-dip budget deficits, and an unwillingness by government officials to articulate policies that will help reduce the federal deficit over time.
- Gold - the Team remain constructive on gold-related securities, including direct exposure to the metal as well as the equities on mining firms and have used any price weakness to add to positions. They continue to hold gold because of its value as a potential hedge against future inflation, an alternative to flat currency, and as a non/low correlated asset to their stock, bond and cash allocations.
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