TAA: tactical cash position ready to capitalise on volatility

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On 11 July our Tactical Allocation Committee cut its tactical recommendation on commodities from neutral to underweight.

Commodity fundamentals shift 4 of 6 Cycle still a headwind for bonds 2 of 6

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We judged that metal prices – including gold – would be vulnerable in the climate of monetary normalisation and stronger supply we expect. We placed the notional funds in cash, which moved from neutral to a tactical overweight. We do not see the immediate prospects for cash as any brighter – even as normalisation begins, it will be many months before short-term interest rates start to offer a meaningful yield – but we don’t yet have enough conviction to add to our existing tactical overweight in developed stocks, or to bottom-fish emerging and/or selected fixed income markets. Market volatility might bring opportunities in this respect.

Tactical Asset Allocation tilts and Strategic Asset Allocation Benchmark (moderate risk profile)

As of July, we use qualitative descriptions of our Tactical positions relative to their Strategic benchmarks, ranging from ‘strongly underweight’ to ‘strongly overweight’. This is a shift away from the percentage-based reporting method we used in the past. Our Strategic Asset Allocation (SAA) models offer a mix of assets that over a five-year period will in our view provide the most desirable mix of return and risk at a given level of Risk Tolerance. They are updated annually to reflect new information and our evolving outlook. Our Tactical Asset Allocation (TAA) tilts these five-year SAA views to reflect our shorter-term cyclical views. For more detail, please see our Asset Allocation at Barclays white paper and the February 2013 edition of Compass. Source: Barclays

Total returns across key global asset classes

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.