Friday May 9, 06:20 PM
Asset allocation: Citi Quilter's Multi Asset Strategy
By Matthew Vincent
Citi Quilter's Multi Asset Strategy portfolio was one of the first to hold a third of its investments in alternative assets - and it maintains a high allocation to hedge funds and private equity today. "It's a result partly of our
view, and partly our clients' view, that investors don't necessarily want the standard balanced portfolio," says Duncan Gwyther, chief investment officer. "When the Association of Private Clients and Investment Managers drew up its indices, alternative assets just weren't part of the private client investment industry - or private client portfolios, full stop. But we foresaw that some clients would want to invest in range of assets." Fixed income exposure, at 27 per cent, is achieved through direct holdings of index-linked gilts. "They're probably slightly overvalued now, from technical point of view - but they're the ultimate inflation-proof investment," argues Gwyther. He has been wary of corporate bonds, though. "This caution has been based on not getting paid for taking the risk. I would say to investors 'I know you think you want them, but there's something not quite right here.'" Equity exposure of 43 per cent is mainly through UK large caps. "We agree with the consensus on large caps," says Gwyther. "We're also wary that we have private equity exposure, which includes small-cap exposure. Hedge funds provide additional exposure to equity markets - but also to other hedge strategies, as the 12 per cent allocation is achieved by using funds of funds. "For us, the appeal of funds of hedge funds is a smoother pattern of return - not necessarily a better return than anything else," explains Gwyther. But he sees the boundary between hedge funds and long-only funds being blurred, as more absolute-return funds launch, and expects private client managers will soon have to devise a separate asset allocation strategy within hedge funds. Property and private equity allocations have been cut to 8 per cent. "We moved underweight on property at the beginning 2007," says Gwyther. "Our reasoning was valuation based: the IPD property yield was at or below the gilt yield." Overall, he expects the portfolio to produce returns of 7-9 per cent a year - crucially, with lower peaks and troughs in value. "I don't think this multi-asset class portfolio will necessarily make more money than a 25 per cent fixed income/75 per cent equity portfolio. But it will have lower volatility!"
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