Asset Allocation for Now

Morningstar investment strategist Andy Brunner recommends a modest overweight position in equities, an underweight in bonds - and a surprising allocation to property

Andy Brunner 12 February, 2014 | 2:57PM

A recent asset allocation update noted that overweight positions in equities ought to be reduced, given the deteriorating emerging market/China background and the limited upside available on equities. For the year as a whole, however, the preference for equities is retained. An outlook of accelerating global growth and ongoing highly accommodative monetary policy over the next year or so should be positive for higher risk assets and negative for lower risk assets. Equities cannot rely too much on further revaluation, however, and improving earnings growth is a prerequisite for the 10% or so gains foreseen.

In summary, we recommend a modest overweight position in equities, an underweight in bonds and with credit – only just – preferred to government bonds and cash as it has substantial illiquidity risk. Commodities continue to face challenges in the “new world” and most forecasters expect long term prices to revert to lower levels. We are heavily overweight  for UK commercial property, as it offers the prospect of equity-like returns but at much lower levels of risk.

A summary of the individual asset class views is shown below:

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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