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"We continue to run a higher risk position in our portfolios, given our positive view for economic growth and the relative attraction of equities versus other asset classes such as fixed income. In comparison to our historic equity allocations, the portfolios are currently positioned at the higher end of the range; however, we expect returns to be driven by alpha rather than beta, and the composition our portfolios reflects this. We maintain "tail risk" hedges to help offset the equity risk and to help limit the potential for large drawdowns.

Investment outlook

Following the announcement on tapering in December, the momentum behind growth and falling unemployment in the US will be pivotal to guide the US Federal Reserve and investors on the trajectory for quantitative easing as well as any interest rate rises. We remain of the view that rates will not rise imminently, as this scenario depends not just on growth, but also on the indebted consumer's capacity to absorb those rate rises. . Thus, we expect developed markets to be characterised by low rates, subdued inflation pressures and low-to-moderate growth, and we expect central banks to err on the side of growth. In light of this, we remain comfortable with a higher allocation to equities and our continued overweight to the US. We are cognisant, however, that equity markets are fair value globally and at this stage in the cycle, earnings growth needs to be visible for markets to climb higher. We have maintained an underweight position to Asia and emerging markets. Of the economies within the emerging universe, we are most positive on China. We remain nervous about fixed income markets and are underweight duration, and we will look to increase diversifiers as they appear more attractive relative to bonds."

David Coombs, Head of Multi-Manager Investments, Rathbones


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