Ibbotsen and Kaplan’s
now seminal research that
showed more than 90% of
returns were derived from
asset allocation rather than
stock or fund selection.
He showed a chart
depicting the best- and
worst-performing asset
classes from 1991 to 2008,
which revealed that rarely
did any one asset class outperform
others two years
running. The exceptions
were global equities and
commodities, the latter
achieving the rare feat in
1995, 1996, 1999 and 2000,
while the former managed
it in 1997 and 1998.
“The key message here
is not to get stuck with one
asset class. People should
diversify their portfolios
and think about what
will pay moving forward,”
Oliver told the audience.
He went on to say that
investors in general and
in the UK in particular
had made this mistake with
property and had got it
wrong, to their cost.
Oliver stressed the
importance of getting
“back to basics” when it
came to investing, by picking
a mixture of assets
with low correlation to
each other. He also said
that ideally asset allocation
should move around
to capture the optimum
upside of a given asset
Collins stewart active allocation strategies
%
500
400
300
200
100
-100
0
JPMorgan
Glbl Bond
Switch UK commercial property to Europe
Long gold and precious metals
Buy UK commercial property
Switch to long/short
equity from long only
IPD Property Databank
class while minimising or
cutting investment in one
that is peaking or falling.
But Oliver said a set
asset allocation that did
not move with markets
was preferable to having
all your eggs in one or two
baskets.
He also warned against
short-termism and chasing
returns. It is better,
explained Oliver, to make
a medium- to long-term
assessment of asset class
returns and base your allocation
on that, altering as
your view changed.
Guy de Blonay, fund manager,
New Star Asset Management
Global financials – obtaining
opportunities from adversity
Shortly in to his presentation,
with sublime understatement,
de Blonay
said: “It is an interesting
time for financial stocks,
obviously.”
It is undoubtedly hard
to make a case for investing
in financial companies
at the moment, but de
Blonay emphasised their
importance in global markets,
highlighting that they
made up around 20% of
global indices and arguing
that if financials are doing
badly, it is likely most other
sectors are, too.
“Financials have to perform
because no other section
of the market can
’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08
1 Jan ’90 – 1 Oct ’08. Source: Bloomberg, Collins Stewart
Sell all property
GS Commodity
MSCI World
Commodities improve your efficient frontier
Annualised return (%)
11
10
9
8
unless credit markets are
working normally,” he
explained.
While financial indices
have fallen across the
board, de Blonay said it
was possible to identify
themes within the sector
that were exceptions to
this rule, “and within these
themes find stocks that will
do better than the index”.
In this climate, he
explained, quality was at
a premium and you had
to be prepared to pay
for that because “winners
are not always the cheapest
stocks”.
He said the largest
companies were those that
would outperform and be
able to take advantage of
the current ‘bloodbath’ to
acquire other firms that
had become good value.
He predicted in the next six
months it would become
clear who the winners and
losers were.
The fund manager said
that within his fund, New
Star Global Financials, he
was moving out of Europe
and emerging markets,
where high levels of gearing
in the former and lax
regulations in the latter
were problematic, and into
US stocks, although avoiding
investment banks.
He said he thought
there was some light on
the horizon for the sector:
DEcEmbER 2008 [www.international-adviser.com] INTERNATIONAL ADVISER
Efficient frontier with commodities
7
3
4 5 6
7 8 9
Standard deviation (%)
Dec ’90 – Feb ’08. Source: ETF Securities, Castlestone Mgt
Efficient frontier without commodities
(bonds and equities only)
feature
“We think that deleveraging
and repricing of risk is
ongoing but we are getting
somewhere near the end.”
Angus Murray, founder
and managing principal,
Castlestone Management
Diversified exposure to
individual commodities
While some pundits have
emerged from the woodwork
after the event to
claim they knew the credit
crunch and its huge scale
was coming, Murray was
firmly of the view that: “No
one could have realised six
to 12 months ago what had
gone on, that there had
been so much leverage in
the markets, that Merrill
Lynch would be sold to
Bank of America and that
Lehmans would go bust
over a weekend.”
He went on to describe
the enormous scale of
the deleveraging that was
taking place, with institutions
being forced to sell
assets into falling markets,
further driving down
prices; in short, asset
prices have plummeted
across the board.
He said the falls in commodity
prices were part of
this phenomenon, which
would also strip out any
speculative investment in
the sector.
But Murray argued
that commodities were
Guy de Blonay, fund manager,
New Star Asset Management
Angus Murray, founder and
managing principal, Castlestone
Management
35
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