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Asset Allocation: seven questions for Charlotte Square’s Forsyth

Asset Allocation: seven questions for Charlotte Square’s Forsyth

We ask Charlotte Square's Amanda Forsyth seven important asset allocation questions.

Can you outline the breakdown or percentage split of your typical medium risk portfolio? 

One of our key tenets is to consider each client separately, so a ‘typical’ portfolio will be almost impossible to identify.

However, a client who comes to us seeking a ‘balanced’ portfolio in the Apcims sense (75% risk assets) will be given an initial outline showing around 55% in equities, split 25% in the UK and 30% international, and 20% in hedge and alternative assets. We have 5% in property trusts or funds, 10% in fixed interest, 5% in zero dividend preference shares and 5% cash. 

Zeroes have to be handled with care as they are not without risk. On the other hand, those with decent levels of cover and with diversified underlying assets can provide a useful proxy for some of the overvalued assets in the fixed interest space. Another useful tool has been the short-dated bond sector, which plays a valuable role in the current environment of low growth. We have used the Smith & Williamson fund with a degree of success here.

Within equity allocations, we are not tied to the heavy UK bias that often characterises a fund manager’s approach. We will include weightings to Asia and the US, and also certain thematic funds such as Herald Investment Trust.

What technical indicator are you watching most closely?

We still check gold. It has so many implications – risk aversion, dollar strength, inflation hedge – so day-to-day movements as well as medium-term trends can be enormously informative.

How has asset allocation changed over the last three months?

We’re starting to feel more optimistic about the medium-term outlook for shares, so while we are positioned for short-term volatility in the face of eurozone concerns in particular, we’re starting to explore ways to build risk exposure again.

Where are you seeing opportunities from a valuation perspective? 

Equities. They are far from being a one-way bet, but if a way can be found through the quagmire that is eurozone debt, the corporate sector looks to be in a relatively strong position in many cases, and that could get the chance to shine through.

Where could a potential surprise on the upside come from? 

We’re already seeing some signs of tentative recovery in the US. If the consumer there can rebuild some confidence, the implications for economic recovery are significant.

What is your current gilt exposure and how do you expect this to change over the coming year? 

Having bought them for clients who sought very little volatility in their portfolios, I’ve seen them deliver double-digit returns in the past year or so, and valuations are now stratospheric. I have therefore decided they no longer represent low risk, and have shifted them out of client portfolios.

What do you see as 2012’s potential black swans? 

I still feel there is a chance that inflation could surprise on the upside. We have had a stable oil price for quite some time, so the comparatives are starting to become easier. However, geopolitical factors are starting to drive it up again.

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