Investment Opportunities for 2012 – Asset Allocation

Monday 14th November 2011

Many investors are desperately seeking a safe-haven in which to bide their time before the Euro crisis reaches its conclusion, which is no easy task.  

Cash is being significantly eroded by inflation and is vulnerable to currency swings, as witnessed by the recent performance of “safe haven” currencies such as the Swiss Franc and the Singapore and Australian Dollars.  Buying Gilts still guarantees a capital loss if they are held to redemption. Gold has fallen back sharply, as I have mentioned, over the latter half of 2011 and remains volatile and other commodities have followed the same path.  Property remains vulnerable to falling rents and is always highly illiquid in times of stress.

The final asset class is equities and, whilst they too cannot avoid a falling market, when the time arises, good quality large companies will be the place to be and in the meantime will continue to provide international diversification and a useful level of income.  Any suggestion of good news (or even the absence of more bad news) could lead to a sharp rally, as shown by the 3 – 4% rises we have seen on the FTSE 100 on a few days in 2011 and the promising start on the markets so far this year.  There is undoubtedly a wall of money waiting to move into the equity markets and, for those who have positioned themselves for the worst case scenario and no doubt deposited their money in highly valued Government Stock, at some point this will move back into the equity markets too.  Although trading the macro-economic picture via asset allocation is notoriously difficult, I believe it will still be the main driver of performance over 2012, and if anything a cautious approach retaining flexibility to move in and out of the markets, and having a balanced well diversified portfolio will be an effective strategy. 

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