"Looking at equity valuations, the risk premium currently on offer is around the 10-year average, which is less compelling when you consider that risk premiums have been rising over that period," said Percival Stanion, head of asset allocation at Barings.
"Faced with this outlook, we think it is prudent to adopt a lower-risk profile at present and hold for a more attractive entry point to risk assets."
"As such, we have shifted our cyclical mix within equities, upgrading consumer staples and healthcare at the expense of consumer durables and telecoms."
According to Financial Express data, IMA Technology & Telecoms has been the best-performing sector in the unit trust and OEIC universe over a three-year period. By comparison, the MSCI World Utilities index has lost 7.04 per cent in this time.
Performance of sector vs index over 3-yrs
Source: Financial Express Analytics
However, Stanion believes the remainder of 2011 will be volatile and uncertain and thinks it is wise to take profits on riskier assets that have performed well since the troughs of early 2009.
He commented: "After two years of strong growth, recent data suggests that most economic indicators are now peaking. Europe is a case in point in this regard. While the industrial recovery in the US is still strong, the consumer sector remains subdued and the housing market looks as if it could be due another down-swing."
Stanion also points to the uncertainty surrounding the supposed end of quantitative easing in the US and the ongoing sovereign debt crisis in Europe as reasons to be cautious.
The pessimism has spread to emerging markets as well, in light of rising inflationary pressures and the inevitable tightening of monetary policy in some economies. Barings funds now focus on indirect exposure via large multi-national corporations.
Stanion views Australian and US government debt as the best bet for fixed income and has high hopes for commercial property, despite its mediocre performance since the lows of March 2009.
He explained: "A real asset we favour is UK commercial property. As banks unwind their exposure to such assets, we believe that investors with long-term investment horizons will be offered attractive opportunities, not just in property, but in other areas where banks had perhaps previously played too big a role in the funding process."