A setback in stock markets feels overdue. The issue is whether it would be large and lengthy enough to warrant repositioning portfolios – the opportunity cost is the possibility of missing an ongoing rally or a quick rebound. We think not, and are again leaving our pro-equity TAA stance in place. With the S&P500 close to an all-time high, many investors have a sense of vertigo. But provided markets are reasonably valued to begin with, there is no reason why stock prices should fall and stay down. Indeed, the norm is for stock prices to trend higher with ongoing economic and corporate growth. Bonds, by contrast, remain expensive. Many are trading above par, and are now very sensitive to changes in interest rates. We advise a strategically underweight position in government bonds (and a tactical underweight in investment grade credit, which is fiercely expensive too). We stay tactically neutral in commodities, real estate and ATS, which are essentially diversifying asset classes. Viewed in this context, the long-awaited decline in the correlation of commodities in particular with developed stocks is welcome.
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Figure 1: Current strategic (SAA) and tactical (TAA) asset allocation by risk profile
As first published on 1 February 2013. The recommendations made for your actual portfolio will differ from any asset allocation or strategies outlined in this document. The model portfolios are
A setback in stock markets feels overdue. The issue is whether it would be large and lengthy enough to warrant repositioning portfolios.
not available to investors since they represent investment ideas, which are general in nature and do not include fees. Your
asset allocation will be customized to your preferences and risk tolerance and you will be charged fees. You should ensure that your portfolio is updated or redefined when your investment objectives or personal circumstances change. Source: Barclays.
Our Strategic Asset Allocation (SAA) models offer a baseline mix of assets that, if held on average over a five-year period, will in our view provide the most desirable combination of risk and return for an investor’s degree of Risk Tolerance. They are updated annually to reflect new information and our changing views.
Our Tactical Asset Allocation (TAA) tilts these five-year SAA views, incorporating small tactical shifts from one asset class to another, to account for the prevailing economic and political environment and our shorter-term outlook. For more on our SAA and TAA, please see our Asset Allocation at Barclays white paper and the February 2013 edition of Compass.
Figure 2: Total returns across key global asset classes
* As of 21 March 2013
† Diversification does not guarantee against losses.
Note: Past performance is not an indication of future performance. Index Total Returns are represented by the following: Cash and Short-maturity Bonds by Barclays US Treasury Bills; Developed Government Bonds by Barclays Global Treasury; Investment Grade Bonds by Barclays Global Aggregate - Corporates; High-Yield and Emerging Markets Bonds by Barclays Global High Yield, Barclays EM Hard Currency Aggregate & Barclays EM Local Currency Government; Developed Markets Equities by MSCI World Index; Emerging Markets Equities by MSCI EM; Commodities by DJ UBS Commodity TR Index; Real Estate by FTSE EPRA/NAREIT Developed; Alternative Trading Strategies by HFRX Global Hedge Fund. The benchmark indices are used for comparison purposes only and this comparison should not be understood to mean that there will necessarily be a correlation between actual returns and these benchmarks. It is not possible to invest in these indices and the indices are not subject to any fees or expenses. It should not be assumed that investment will be made in any specific securities that comprise the indices. The volatility of the indices may be materially different than that of the hypothetical portfolio.