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How to play the great bond-equity correlation unwind
by Danielle Levy on Aug 29, 2013 at 13:53
He expects the separation stage to last for the next few quarters and when there is a return to trend growth and historic long-term valuations for bonds, the correlation between the two asset classes will return.
Ricciardi and co-manager Max Royde make asset allocation decisions based on relative levels of risk across asset classes on a global basis and seek to lessen downside risk. The fund currently has around 45% in direct securities, 40% in exchange traded funds and 15% in Ucits absolute return funds.
The global multi-asset portfolio uses proprietary systems to generate market signals, based on financial, macroeconomic and monetary time series across 12 asset classes.
‘Every night we are generating around half a million data objects and we combine these into a full set of leading indicators for covering the entire macro-economic and financial space for 24 countries. This means generating more than eight million data series,’ he said.
This is then put together for global equity, bond, commodity and currency markets, creating buy and sell signals across different areas each day.
UK upward trend
According to Kestrel’s indicators, which are openly available to its clients, the UK economy is now on an upward trend, with a 2% GDP forecast by the end of November. This is the strongest growth the economy will have experienced since the third quarter of 2009.
‘Our prediction out to November is telling us that industrial production, investment, foreign trade and consumption will all contribute to an acceleration,’ Ricciardi said.
Crucially, he anticipates inflation will remain flat up to the end of November. Nonetheless, despite an improving economic backdrop and valuations that are behind the long-term trailing price to earnings multiple of 19, he says UK equities are not yet a buy.
‘The whole thing is neutral right now, but if we expect to get slightly better technicals it will become a buy,’ he added.
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