Asset Allocation

Deciding on where to allocate capital has seldom been much harder, as we traverse global financial markets replete with conflicting messages, political uncertainty, and collapsing rates.

As fluctuating sentiment has the potential to drag us left and right, having the right decision tools and processes is vital to stay anchored and consistent, but remain flexible and nimble.

One key table we are using at the moment focuses on the sensitivity of asset classes and sub-sectors to falling rates. It is the key table at the moment, and an essential part of our current decision making process.

The impact of rates is littered with contradictions and opposing forces. For instance, a fall in rates is both potentially a positive for equities (via a drop in the discount rate), and a negative (via the implication of a deteriorating economic environment).

In the table below, we codify every asset class and sub-class in terms of its Rate Sensitivity (a '++' indicates a strong beneficiary of a falling rate environment, '0' no impact, and '--' a strong negative detractor), and Growth Sensitivity. 

click below on the image to enlarge  




Comments

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James Marlay

Great table and love the explanations in the comments section.

Nick Morton

Thanks James. Appreciate the feedback.