Martin Clements, director of asset allocation at RSA Investments One of the difficulties for bot...
Martin Clements, director of asset allocation at RSA Investments
One of the difficulties for both advisers and fund managers when considering the merits of the managed sectors is that, unlike other sectors, there is a wide range of fund offerings from which to choose.
For example, recent years have seen a rising number of funds of funds in the managed sectors but these can be either internal or external in terms of where the portfolio manager looks to take weightings. Even so, a number of mainstream funds still inhabit these sectors, with direct equity holdings still being selected by the funds' managers.
The weightings for UK equities in the active managed sector, for example, range from around 50% to nearly 100%. But whether funds have a purely UK remit or invest in markets across the globe, the heavier the equity weighting of a fund this year, the more likely it is to have incurred serious losses.
For funds that, like the majority in the active and balanced sectors, maintain diverse international portfolios, US weightings have proved most damaging this year. On average, the sector has cost investors more than 33% of their fund values since the start of the year and is the main culprit behind average active sector returns of -22.8% and balanced sector returns of-20.88 this year.
Markets that have had more to offer asset allocators this year have been Japan, emerging markets and the Pacific Basin, with markets such as the UK and Europe pretty much positioned in between the US at one end and the Far East at the other.
This is the second year the emerging markets have made the running as the US continues to languish some years out from its peak in the mid to late 90s.
Our overweight position in the emerging markets and Far East earlier this year did help to insulate us from the worst excesses of the US confidence crisis but little else, unfortunately.
Recent moves by our peer group to increase its own positions in these sectors have meant we've temporarily lost our relative overweight here but we are likely to correct this position soon.
Despite the damage done by US weightings already, we still see US equities as relatively expensive compared to other world markets. The decline in such stocks has only brought them nearer to fair value ' they still have some way to go, in our view.
This is a view obviously shared by other managers in the sector as our current slight overweight in the US (relative to the sector) is a result of other managers reducing their own US weightings rather than a reflection of our own confidence in the market.
Europe, however, is currently our most overweight relative position in both managed sectors on the basis that it remains reasonably insulated from the worst excesses of the global confidence crisis and, as a result, should perform more strongly once buyers return to the market.
In terms of our bond allocation, we remain 3% underweight in our balanced fund and almost 4% underweight in the active fund. While these positions may have hurt us this year, taking performance down to mid sector levels, our current heavy equity position should restore relative performance in coming months.
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