Where my money is now - and where it isn't

At a conference a few weeks ago (at which I was speaking) an audience member put me on the spot by asking me where my own money was invested.

It was an audience of professional investors, so I pointed out that I am not a fund manager, that I only really invest through my individual savings account (Isa) and self-invested personal pension (Sipp) and most investments are made with the long term in mind. No one is checking on my quarterly performance or comparing me to a random benchmark (just as well), something that makes what I hold pretty irrelevant to their portfolios.

That didn't seem to put them off. So I told them. And, as they all seemed unexpectedly interested, I'll tell you, as well.

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I own shares in several investment trusts invested in Japan as well as in Europe. I have a holding in the BlackRock Gold and General Fund which has been with me since 2002 and which I am now cutting back on. Gold, as I have said here before should now be considered an insurance rather than a speculative holding and make up not much more than 5-10% of a portfolio.

I have a variety of dividend-paying defensive stocks and a few ETFs in the US and the UK tracking high-yielding stocks. I have a few smaller company holdings I can never quite bring myself to sell Falkland Oil & Gas and I have high long-term hopes for pan-African mini-conglomerate Lonrho, which I have been holding for many years.

Otherwise there is just cash. There is no sovereign bond exposure and, barring a BlackRock Latin American fund, which has served me well over the last seven years or so, there is very little emerging market exposure.

The next question was a little trickier. Where might I put my cash next? That's one more easily answered in the negative.

It isn't going into gilts or Treasuries. Our central bankers think they are capable of preventing inflation.

Sir Mervyn King told a press conference a month or so ago he has "absolutely no doubt" that he will be able to reverse quantitative easing (QE) when he considers it necessary taking money out of the economy as recovery starts to push up prices.

In the US, Ben Bernanke says that he too is "100%" convinced he can control inflation . But can these two really do this? Troy's Sebastian Lyon doesn't think so: "Given that this requires negotiating the biggest debt burden in history and somehow managing to neutralise the unprecedented expansion of central bank balance sheets, we remain sceptical." Me too.

As Personal Assets Trust's Robin Angus puts it, to think that it will be easy to get out of QE before a rising velocity of money kicks off inflation is "like saying after a orgy of Christmas guzzling it will be easier to shed those few pounds than it was to gain them". Inflation at some point is a given.

My cash isn't going into any bank shares; nor is it going into anything connected with China (I'm still expecting a hard landing). So no luxury goods companies and not much in the way of big miners.

But it isn't just sitting there for no particular reason either. It is waiting. Waiting for what?

Two things. In the medium term, for a real bear market bottom (which we can probably expect to come in the next year or two as we get a proper deflationary scare from the European crisis). In the short term, the next sell-off and the next bounce. The FTSE 100 has gone nowhere for years. But it has done nothing in style.

Between December 1999 and March 2003 it fell 52%. From March 2003 to June 2007 it rose 106%. From July 2007 to March 2009 it fell 48%. Then from March 2009 to February this year it rose 75%. Now it is falling again.

Markets never move anywhere in straight lines and in times of crisis they tend to be more volatile than usual, moving up and down on the hyping and sinking of sudden illusions of returning prosperity or magic money solutions for sovereign and banking sector debt. When this down- leg has gone far enough that the good defensive stocks look cheap again or the better quality investment trusts shift to trading at better discounts to their net asset values, I'll buy some more.

I am regularly asked why I tend to favour investment trusts over unit trusts. A note from Alan Brierley of Canaccord sums it up nicely: they are generally cheaper than other funds; their managers are able to get on with running money without the distractions of redemptions and cash inflows that force unit trust managers to endlessly trade; and, best of all, they offer a "superior broadly based long term performance record".

The 16 largest equity focused investment trusts on the market "have outperformed the equivalent open-ended fund sector average over the past ten years, by a simple annualised average of 4.3%". That's roughly what I am hoping my own portfolio will do.

This article was first published in the Financial Times