existent, so it depends
on the client profile how
much they hold. If they
are aggressive, they would
generally have a higher
commodity weighting.
We use 21 managers
taking long and short positions
on a wide range of
commodities. There are
about 40 exchange-traded
commodities around the
world so we have managers
investing in a wide
range of those. The reason
we constructed the fund
this way is because we
thought there were drawbacks
with everything else
out there and we wanted
a risk-averse exposure to
commodities that is really
applicable across a wide
range of client portfolios.
l Equities
I am reluctant to say we
have reached the bottom
yet, but I do think we will
see a bear market rally perhaps
into the New Year.
Equities are still likely to
go down and will probably
test the low level we had a
few weeks ago.
Equities are cheap on a
long-term basis, although
that is not to say they will
not get cheaper. A bear
market rally is still most
likely for the short term,
but in the long term we
would rather build investment-grade
bond positions
than equity positions.
Economic conditions
are going to get a lot worse,
and I know equity rallies
do price in market recoveries
a lot earlier. But I still
do not think we are anywhere
near knowing how
bad the economic numbers
are going to get. We will
go through a period where
companies will go bankrupt
daily. In turn, this will
hit market psychology as it
is hard to sustain a rally
when you are waiting for
the next firm to go bust.
l Bonds
Asset AllocAtor BDo stoY HAYWArD INVestMeNt MANAGeMeNt
stick to corporates in a
more balanced one.
When considering where
to add allocation, we look
at investment-grade bonds
first rather than jump
straight into equities. We
look at corporate bond
allocations, stick to investment
grade and ignore high
yield. We buy bond funds
so leave the sector choice
to the fund manager.
If you want to have some
There are going to be some
options in equity markets,
fantastic, once-in-a-lifetime
you could look at converti-
opportunities in developed
ble bonds as they are
market commercial proper-
extremely cheap.
ty. Once things calm down
We typically have
and banks start lending, the
around 20% in bonds in In our FOHF there will be market will move again. A
most portfolios. We use a five or six managers with lot of the off-market deals
variety of corporate bonds, discretion to do their own are incredibly attractive –
some gilts and some emerg- thing within their own funds selling units quietly
ing market bonds. The structure, typically holding – and a recovery fund in
emerging market bonds between 20 and 40 under- commercial property looks
are in local currency but lying managers.
very interesting.
hedged into sterling.
Within the FOHF
We are still pretty posi- universe, we split them
tive on emerging market between low, medium and
bonds, although they tend high volatility managers so We are not yet convinced
to be included in a more we will have a couple of about private equity as part
aggressive portfolio; we aggressive, thematic man- of a central allocation as it
sUMMArY
does not currently look
BDO Stoy Hayward Investment
fitzwilliam commodity plus fund
like delivering more than a Management uses its own
public equity fund.
Multi-commodity physical 27.09%
in-house model to analyse
We are looking for pri- and stress test asset classes
vate equity to provide far to design a range of fund of
superior returns to a stand- funds portfolios.
Shipping 4.65%
Multi-commodity
ard equity fund as we see
equity 6.31%
Up to 15 asset classes are
it as a return enhancer tested, although not all are
rather than a risk reducer. included in the portfolios
You need to be a large themselves, private equity
Metals 14.08% pension scheme to get the being the most notable
best managers in private
exception.
Energy trading
24.18%
Precious metals equity, so for us, because The portfolios are implicitly
5.13%
we cannot fill it with man- adjusted for inflation and
agers that are utterly com- real interest rates to drive
Softs 14.56% Grains and bean 4.01%
pelling, we do not allocate a gross return that is in
Source: BDO Stoy Hayward Investment Management
to it at all.
excess of cash.
l FOHF
BAlANceD portfolIo MAke-Up
n Equities
UK 10%
US 6%
Europe ex UK 4%
Japan 0%
Emerging markets 0%
n Commodities 7%
A more aggressive portfolio has a weight to emerging markets,
less UK bond exposure and slightly more hedge/commodity funds.
For very aggressive portfolios, we tend to use more aggressive
underlying managers than increase the equity beta. We are not
currently allocating any new money to physical property (we do
not buy REIT funds and only use active physical funds).
DEcEmbER 2008 [www.portfolio-adviser.com] PORTFOLIO ADVISER
n Fixed income
UK government 0%
UK corporate 11.9%
Global ex UK 8.2%
n Property 20%
n Funds of hedge funds 23%
n Cash 10%
agers alongside others who
have a diverse portfolio
of 40 low-volatility managers.
We also look into
the underlying structure as
well to make sure there is
no overlap.
l Property
l Private equity
“
There is always
criticism about how
much data you use.
But using hundreds
of years of data
does not necessarily
give you the perfect
”
answer
33
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