The firm is putting its money where its mouth is by raising its allocation into hedge funds and alternatives by 2%, or £500m, at the expense of index-linked gilts and cash.
As well as hedge funds, absolute return and defensive structured products have also been upped to achieve what Investec believes is a more balanced portfolio with less correlated investments.
Investec believes the changes will give the firm ‘a greater opportunity for outperformance over the next 18 months.’
In reaching the decision, the asset allocation committee factored in a belief that stagflation is less probable than deflation, reducing the appeal of index-linked assets.
The committee also noted the attractiveness of converting the zero return option of cash into higher yielding absolute return targeting strategies.
“Alternatives have become increasingly attractive compared to other options offering ‘insurance protection’ in client portfolios,” said chief investment officer Chris Hills. “Despite a choppy start to the year, our risk outlook remains unchanged. We believe that reflation is the most likely outcome over our investment time horizon as opposed to deflation or stagflation.
“Notwithstanding, we believe that risk assets remain attractively priced relative to ‘insurance’ assets such as fixed income – even more so than last year, since equities rose only alongside earnings but bond yields fell sharply and the health of the corporate sector that supports those risk assets is strong,” Hills added. “Once Europe’s near-term political issues are put to rest, economic growth is expected to become more broadly based and earnings are anticipated to grow solidly.”
Investec Wealth and Investment has just over £25 billion under management in the UK.
