Asset allocation: Kestrel's major calls

CEO John Ricciardi is cutting his bond exposure in favour of a higher weighting in commodities and emerging markets

How has asset allocation changed over the past three months?

Coming out of the September/October correction our asset allocation moved up the risk scale towards a seven on a scale of one to 10, with higher allocations to emerging markets and to commodities in particular, and lower allocations to gilts and Treasuries.

What have been your latest allocation calls?

Of late, our investment process has been suggesting that the world’s central banks will take further action to support global economic growth. This further monetisation should lead to more attractive valuations for gold and less attractive valuations for sterling and the euro.

Can you outline the breakdown of a typical medium risk portfolio at the firm?

We divide our portfolio allocations into a basket of high-expected-return assets with high volatility, and a basket of lower risk assets. A typical medium risk portfolio at our firm will hold 65% high risk assets and 35% lower risk assets.

Within our high risk basket, the optimal long-term allocation consists of holdings in major market equities, developing market equities, speciality equities, and commodities, including energy, industrial metals and gold, as well as real estate and private equity.

Our optimal low risk basket consists of government bonds, corporate bonds, equity long/short funds, hedge funds and cash. All of these positions are in large and liquid securities, and the vast majority of absolute return fund holdings are daily-dealing.

Where are you seeing opportunities from a valuation perspective?