This year we want to emphasise that the key to stable risk-adjusted returns lies in the price you pay for assets. While GDP growth is important to wealth creation, the markets continually assess direction well in advance. For bonds, the coming years will mean investing along the interest rate curve as the shape changes. For equities, we are strong believers in companies over countries and will focus on paying the right price for Global Stars.
Last year the markets gyrated through a year of transition, ending strongly. We outperformed the benchmark and minimised volatility throughout.
Cyclical Tailwinds, Secular Headwinds
We revisit the 17-year cycle chart and point out that while cyclical tailwinds have produced an outstanding recovery, secular headwinds remain key risks. The 2011 ride will be messy.
Managing Through a Bond Bear Market
Bond yields began a move up at the end of 2010, suggesting the final stages of a 30-year bond bull market. We provide a strategy to manage through the transition.
It's Not the Economy Stupid
While this expression may be counter-intuitive, investing without regard for country-specific GDP growth is smart investment policy. Ignore the noise, what you pay is everything.
Last year we highlighted technology as an overweight choice. We remain overweight with a preference for companies positioned to take advantage of an accelerating data explosion. Companies involved in the control, management and protection of data stand to fare best.
This is another secular theme we like. As economies and appetites get more sophisticated, so does the demand for energy and food.
2011 Tactics - It's What You Pay
2011 will be volatile, providing opportunities to pay the right price. Thematically, exposure to Data Explosion and Hard Assets will be priorities, as will our focus on Global Stars at the core of the portfolio. Virtual bonds could see competition, but we see opportunities abroad, particularly Singapore. In fixed income, we will remain focused on credit quality and securing yield that compensates for the full breadth of risks.