Uncertainty prompts the panellists to take a cautious stance, preferring strategic bond funds and emerging markets - although British listed stocks with global exposure are also favoured.
“We are positive on equities but if you look where we’ve increased our allocation it’s been towards the UK and US,” he says. “That has probably been at the expense of emerging markets as we think some of them have already run too far.”
There is little call for extra exposure in the AFI portfolios in eurozone equities. With the situation surrounding the bail-out of Ireland still not fully resolved and uncertainty over the implications the Irish debt crisis has on other members of the single currency with large fiscal deficits many investors have been scared away from the region.
This is despite positive news from Germany where business sentiment rose again in December for its second consecutive month, according to the ZEW Indicator of Economic Sentiment. German GDP grew 2.3% in the second quarter of 2010, although it slowed to 0.7% in the third quarter.
“We are neutral on European equities but we think there will be a turning point in 2011,” Davies says. “Stimulus in Europe would we a positive for markets, but what you will get is different regions in the eurozone doing better than others.”
There seems to be growing conviction in the prospects for the gold price in 2011. The shift of central banks from the sell side to the buy side of the market alongside the growth of exchange traded commodity funds in recent years have provided substance to the argument for a sustainable rally in the gold price.
“There’s a lot of money going into gold at the moment,” says McDermott. “If you look at emerging market central banks they have relatively small gold reserves and there’s also a number of people looking to gold as a hedge against possible inflationary risks.”
Positive sentiment towards gold has suggested an underlying concern over the prospects for other markets. It seems that, at least in part, the appeal of a haven is beginning to outweigh earlier concerns that with gold at about $1,400 an ounce the majority of the gains to be made in the asset class have already been had.
The Adviser Fund Index series – a summary
The Adviser Fund Index series comprises an Aggressive, Balanced and Cautious index each tracking the performance of portfolio recommendations from a panel of 18 investment advisers. For each risk profile, all panellists specify a weighted portfolio of up to 10 funds from the authorised UK unit trust and Oeic universe that, when aggregated, define the constituents and weightings of the three AFIs (see www.fundstrategy.co.uk/afi/).