Asset Allocator folk loitering near the canapes recently caught up with Close Brothers chief investment officer Robert Alster.

Alster says his firm is strictly neutral on bonds, fixed income and alternatives right now as he feels the full implications of higher interest rates have yet to be felt in the economy. 

The economist Milton Friedman first highlighted the gap in time between rates rising and the impact being felt in the real economy, calling this phenomena, "a series of long and variable lags".

The uncertainty around this is why Alster's positioning is so conventional right now, but under the bonnet of the portfolios, changes have been happening. 

He says they moved fixed income exposure from a sharp underweight to neutral in recent months, with Alster believing higher yields and falling prices have made "bonds investible again for the first time in 15 or 20 years". 

He says they moved fixed income exposure from a sharp underweight to neutral in recent months, with Alster believing higher yields and falling prices have made "bonds investible again for the first time in 15 or 20 years". 

He is especially keen on corporate bonds as he feels the yields there are actually so high they are comparable with those of equities, while obviously having less risk.

One consensus view he is shunning is the notion that rates could soon be cut, and so the correct thing to do is buy long-dated bonds and equities. 

The recent rally in US tech stocks is a function of this view, but the equity market at which Alster is making eyes right now is Europe, where he believes the return of Asian tourists seeking luxury goods means it is at the start of a positive cycle rather than near the end of a cycle, as may be the case with the US economy.

The divergent path between US and European interest rates starting to diverge, the impact on those asset classes is likely to be profound in the coming year.