Investments  

Asset allocation turned on its head in low rate world

 

Traditional asset allocation has been turned on its head by low interest rates and quantitative easing, and advisers need to think differently about where to put their clients' funds, according to managers at Miton and Walker Crips.

Speaking on the latest FTAdviser Podcast David Jane, multi-asset fund manager at Miton, said: ”Traditionally people bought equities for capital gain and bonds for income in normal market conditions, and in recessions the bit of capital gain you make on the bonds mostly offsets the capital loss you might have seen on the equities.

"But in a world of quantitative easing it is quite different. Bonds and equities have gone up together, and indeed equities are to some extent rising because bonds are rising.

"In that world you need to think differently about capital preservation, and look to defensive equities and precious metals."

Gary Waite, investment manager at Walker Crips, said: “For the advisers we deal with it's almost a realisation that they have to expect lower returns than we have seen in the past decade.

"QE has inflated asset prices and in time that will reverse. I think if you look at the returns from funds in the multi-asset sector, they have varied sharply from minus 16 to plus 20, depending on which fund you are looking at.

"And the difference in performance is accounted for by the different ways fund managers have been doing the asset allocation. We think cash is a competitive asset, and we are also invested in gold.” 

The managers also discussed the outlook for UK equities in a post-Brexit world, with both Mr Jane and Mr Waite being cautious right now but taking the view that the assets are cheap if an investor can afford to look ahead five years.

Each week, FTAdviser will be joined by a guest from the industry to discuss the week in news and pressing industry issues.

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david.thorpe@ft.com