T Bailey

New research underlines importance of asset allocation to returns

Published 12:00AM 15 February 2010

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T. Bailey’s annual Global Asset Performance Study has underlined the importance of asset allocation to investment performance – and the benefit of active asset allocation.

An investor who put £1,000 in an average performing global emerging markets equity fund would have seen their money grow to £1,577 in just 12 months. If they had put their money in an average Japan fund they would have seen it fall to £966 – a difference of £611 (or 61%).

The research also offers a warning to investors not to automatically put their money in the geographical region that did best last year.

Japan was the best performing region for equities in 2008, the worst in 2009 (see figure 1). Likewise, the year before, Asia Pacific ex Japan was the best region – up 36.4% on average, but losing nearly all those gains the following year with a 33% fall putting it close to the bottom of the performance tables.

T. Bailey Fund Manager Elliot Farley said: “Too often our research shows that the best performing area one year has a much tougher time the next. Investors intuitively feel comfortable putting their money where they see success, and feel wary of sectors that have underperformed, but the warning that past performance is not an indicator of future performance really holds true.

T. Bailey Head of Marketing and Communications Philippa Gee said: “This research underlines the value of spreading risk. We are still seeing too many investors put the majority of their equity holdings into the UK – sometimes just a FTSE 100 tracker – and that’s risky.

“No-one can predict with certainty which area will outperform but if you have a diversified portfolio, with sensible asset allocation – going overweight in the right areas, and underweight where appropriate – it can make a big difference to returns.”

She said the findings demonstrated the potential for active asset allocation and the benefits of funds of funds. “The challenge for the investor is finding a way to build a balanced portfolio that is actively managed to exploit the ever changing markets and that’s exactly what funds of funds can do. We think it’s the most cost-effective way to get that active portfolio management. It’s much cheaper than discretionary management and you can invest in a fund of funds from as little as £50 a month.”

Looking ahead T. Bailey forecasts that emerging markets will have a tougher time later in 2010. Having been overweight in emerging markets for much of 2009, it has recently reversed its position within the T. Bailey Growth Fund and its passive-only equivalent the T. Bailey Growth Fund LITE.

Gee said: “Emerging markets had a cracking run in 2009 but the sector is beginning to look overbought. We think there may be a correction soon and have rebalanced our portfolios to anticipate this.”

Figure 1. A selection of major Regional IMA Equity Sectors Calendar Year Asset Class Returns in Sterling terms.

Past performance is not a reliable indicatior of future results.

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For further information and a fuller version of Figure 1 – looking at 15 IMA sectors over 10 years, call:

Philippa Gee
Head of Sales, Marketing & Communications
Mobile:        07977 777 009
Direct Line:    0115 988 8265

Notes on T. Bailey:

•    T. Bailey is an independent, Nottingham-based investment boutique specialising in multi-manager funds-of-funds.

•    It was established in 1999 by the Forman Hardy family, one-time owners of the Nottingham Evening Post, after family members became disillusioned with traditional private client stockbroker firms.

•    T. Bailey’s services became available to the general market in 2004.  The Forman Hardy family’s money, along with that of many of the T. Bailey team, remains in the company’s funds of funds – meaning that clients’ investments receive the same care and attention as the investments of the founding family and its staff.

•    Other benefits for clients include an unshackled, specialist approach that means T. Bailey only manages fund of funds. This specialised focus helps ensure that T. Bailey fund managers respond to industry developments and market conditions with speed and agility.

•    These factors, along with its strength in asset allocation, fund selection and active management, have combined to deliver benchmark-beating performance.

Important information/risk warnings

This document is issued by T. Bailey Asset Management Ltd (TBAM), which is authorised and regulated by the Financial Services Authority No. 190291. The T. Bailey Funds are designed for investors seeking a core investment vehicle in UK and worldwide equities and are subject to normal stock market fluctuations and other risks inherent in such investments. The value of investments can rise or fall, and past performance is not a reliable indicator of future results. Full details of T. Bailey Funds, including risk warnings, are published in the T. Bailey Funds Simplified Prospectus, available on request or at www.tbailey.co.uk. This document has been produced for information only and should not be interpreted as advice. Please note telephone calls to T. Bailey may be recorded.

T. Bailey Asset Management Ltd (TBAM) is registered in England & Wales, Number 3720372. Registered office: 64 St James’s Street, Nottingham NG1 6FJ.

 

Submitted by: Philippa Gee

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