What is asset allocation and what are the roles of asset allocators?
The fund management
companies overall investment strategy (often referred to as the house
view) is generally periodically reviewed by senior investment directors
in the light of current macro economic and market data and investment
views shared across desks within this firm. The role of asset allocators
is to decide on the proportions of clients funds between equalities,
bonds, property and cash.
Political changes affect asset allocation in terms of prospective governments expected policies on government spending, interest rates, balance of payment strategy and economic management generally.
Other factors include government fiscal policy, such as money supply changes which can lead to expectations of inflation increases, which may in turn lead to interest rate rises to damp down inflationary pressures. In addition, there is a degree of inter dependence between markets, e.g. a general rise in bond yields will tend to increase the currency of denominations, as well as reducing the amount of funding sourced from bond issuance in favor of equity.
Market Specific Asset Allocation Considerations:
Equities: The following is a high level summary of the factors affecting general allocation to equities.
Cost Factors Impacting Earnings: Interest rate prospects are of concern, especially with recent government standard interest rate increase responses to inflationary pressures. Companies will suffer higher funding costs accompanied by higher wage claims. Additionally, as mentioned, domestic interest rate rises also increase the domestic currencys strength, reducing export demand. The factor is becoming increasingly important with the growing internationalization of companies.
Other significant factors that affect different industrial sectors in different ways include the oil price, wage inflation, productivity and threats to certain markets through the instigation ore removal of trade barriers.
with corporate bond market:
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