“I can see in 2016 a push to increase our fixed-interest weighting, as and when interest rates start to rise in the US and UK,” he says. “This is because it might lead to more attractive opportunities, especially in the high-yield space.”
Alternative route
Another large part of CAM’s asset allocation is towards alternative assets, such as infrastructure, global macro, private equity and ground rent funds, which provide an uncorrelated source of returns. At present, these assets make up 12.5% of the balanced portfolio but they could rise in the future.
He explains: “Over the next 18 months to two years, as we become less comfortable in equity markets, it could move to fixed interest but, given the current interest rate environment, we are more likely to increase our exposure to alternatives. This covers everything, bar long/short and market-neutral strategies, which will ideally provide high single-digit growth and low volatility.”
Building on property
The other big overweight for CAM is UK commercial property. At 12% of the balanced portfolio and 15% of the more cautious portfolio, Calder says this is the highest allocation to the sector for “a number of years”. At the start of 2014, the weighting was only 3%.
“We are very positive on certain elements of the UK commercial property market,” he says. “However – and we have been very vocal about this – our view is that clients are not best served in buying the well known, leviathan property funds. This is because of the challenges they face owing to their size.
“Instead, we prefer the smaller direct property funds that are more focused on the UK secondary market, such as Kames Property Income and the Threadneedle UK Property Trust, while for a more core holding we like the F&C UK Property Income fund.”
On top of this, Calder also holds some more investment trusts that he bought for specialist niche opportunities, such as GCP Student Living. “The question we are asking ourselves is when to reduce this property exposure,” he adds. “If you asked me this time last year, I would have said we would begin to cut it in the first quarter of 2016, but this has now been pushed out considerably given the slower rate rising environment than was expected.
“If we do decide to get out, it is as an asset class we can quickly move to being zero weighted, but I do not foresee this happening in the short term.”
