Investment Week is carrying two stories today that might be considered contradictory if read at the same time.
Fidelity star fund manager Anthony Bolton is reported in one article as remaining a world equity market bull. This is despite a global situation that resembles ‘a big game of poker’.
In another article, Stephen Snowden at Kames Capital explains why he thinks now is the right time to buy gilts.
Equities and gilts tend to be negatively correlated. This means that they usually behave differently; when equities are gaining value, gilts should lose value, and vice-versa.
So, is now the right time for equities or gilts? Bolton and Snowden both make good arguments for their favoured asset classes.
Arguing the case for global equities, Bolton explains that too cautious an outlook is currently priced into company shares, with the valuations we witnessed before the summer sell-off still considered more reasonable than those seen during previous economic cycles.
He argues that it is more important to consider equity market valuations, rather than the global outlook.
Snowden argues that, despite negative real rates of interest, investors might find gilts a good place to be when facing a bleak economic outlook.
In practice, no investor should make the absolute decision between equities and gilts. A well balanced portfolio should contain exposure to both asset classes (and others).
A bullish or bearish attitude on an investment asset class should then drive tactical adjustments to the asset allocation of a portfolio.
Believing that prospects for one type of investment are better than those for another is not a reason to exclude that investment from a portfolio, but to adjust the weighting accordingly.
Photo credit: Flickr/TheCulinaryGeek
