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Portfolio management: asset allocation - Essay Example

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Dysg Capital Advisors is a UK fund which provides an investment vehicle for educational purposes. The fund was initiated in July 2004 with the aim of providing an avenue for saving towards educational purposes. Members of the fund make regular contributions to the fund, their aim being to achieve significant growth in value in the long run, in order to finance an educational objective, mainly children's school fees or university fees…
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Portfolio management: asset allocation
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Download file to see previous pages From July 2009, it forecasts that fund withdrawals (by members which have invested for at least five years) will exceed fund inflows (from new and existing contributors) by 3% per annum on average for the subsequent five years.
Industrial production in the UK dropped below industry expectations, sparking fears that the contraction in growth for the last quarter would be as sharp as 1.5%. "Jonathan Loynes, economist at Capital Economics, noted that for the month of January alone, production fell by 2.6 per cent against consensus forecasts that the drop would be less than half that". The manufacturing sector, declining by 6.4%, is one of the biggest losers among the industrial groups that make up the index. Among the market sectors, consumer durable goods registered a sharp fall of 8.9% while non-durables fell by 2.5%. (Cohen, Norma, 10th March 2009, "Industrial output falls worse than feared", Financial Times)
UK average house prices, as measured by the Halifax House Price Index, are currently close to the price levels seen in 2004. Wiping out the 2% gain it saw in January, the index has recorded a further 2.3 percent decline in February, contrary to popular expectations. Impending actions on further financial support from banks and caution on the part of lenders by forcing higher down-payments from buyers could push the house prices down a further 10 to 20 percent. (Cohen, Norma, 5th March 2009, "House prices resume downward trajectory", Financial Times)
The UK economy shrank a further 1.5 percent in the last quarter and forecasts point towards an annual 4 percent contraction by the end of this quarter. With UK preparing for its so-called quantitative easing to stimulate its economy, large scale borrowing is on the cards. Talks of nationalizing banks have kept banking stocks depressed and while this is good for government bonds, concerns for the banking sector are not eased. The Bank of England has announced plans of spending 75 billion pounds to buy corporate bonds and government assets that have between 5 and 25 years to mature.
Analysis of the existing asset classes
UK equities:
According to economic forecasts, the GDP growth is expected to contract by 3% this year. Even though expectations are high as far as long term growth is concerned, with inflation likely to close in on zero and the environment being tough for corporate earnings, the short-term story direction is hard to take a call on. The valuations of equities, having absorbed most of the bad news shed by the economy, represent good value at current levels. But with the government currently occupied with bail-outs and support packages and the pessimistic outlook held by majority of the investors, 2009 is not likely to see much come back as far as equities are concerned. (easier.com, Finance, 16th February 2009, "Threadneedle: Outlook for UK equity market). The outlook could still get worse with the expected increase in unemployment figures and companies shedding their excess capacities built up during the past years.
Overseas equities:
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