Video: David Willcox talks asset allocations

Increasing correlation in the performance of global equity markets is making certain asset allocation decisions more difficult, according to David Willcox, investment director at City Asset Management.

He said that City Asset Management was not necessarily bucking the consensus view that investors should generally be looking to increase their equity exposure at this point in time and cutting their fixed income exposure.

However, while there are undoubtedly opportunities, any increase in correlation in the performance of equity in different markets could increase the importance of currency as a risk factor in deciding which markets to invest in.

Willcox said he is content to invest more in global equity funds, but with an eye to being agnostic about where underlying companies are based. The issue is the geographical spread of sales rather than the location of corporate headquarters, he said. For example, Nestle does not sell a lot in Switzerland – its home market – relative to its global turnover.

In an interview filmed exclusively for Trustnet, Willcox outlined his view of asset allocation requirements in the current investment environment.




He said that besides equities, there were also reasons to expect gold to continue to attract – particularly as a result of QE2 in the US, which has the effect of devaluing the dollar.

Investors holding dollar denominated assets will want to hedge against losses caused by the declining value of the US currency, particularly by buying gold and thereby providing even more stimulus to the price of the metal.

However, property as an asset class is less certain to perform. The UK, for example, remains a mixed market in terms of property assets and yields, with location still playing an important role.

Willcox said he expected inflation to remain strong through 2011.

There is evidence of correlation between GDP growth and price rises over time, with policymakers keen to avoid the Japanese experience of deflation. Inflation is definitely something affecting his thinking on asset allocation decisions for the future.