Asset allocation is at least as important as individual share selection. So where should yoube putting your money? Here's our monthly take on the major asset classes.
Bonds
Taking more risk
Investors have rediscovered their appetite for risky debt. After a heavy sell-off in the second half of last year, bonds issued by companies with poorer credit ratings (known as junk bonds, or high-yield bonds) staged a strong rally in March. The spread between the yield on the Bank of America Merrill Lynch US High Yield index and the yield on US Treasury bonds fell back to around 7% at the end of March, from a high of almost 9% earlier this year (falling bond yields mean rising prices).
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This reflects optimism that rising defaults among American energy and commodity companies won't affect the wider junk-bond market. That bet may prove correct in the short term, if the Federal Reserve holds back from tightening monetary policy and America avoids a recession. Nonetheless, the balance sheets of American junk-bond issuers look stretched, with an average debt-to-earnings ratio of almost five, compared to around three in 2011. When the credit cycle turns, defaults and losses are likely to be severe. Don't be tempted by eye-catching yields; stick to the highest-quality issuers for your bond portfolio.
Cash
No change
Equities
A growing gulf
Stocks staged a strong recovery in March, led by America: the S&P 500 is within 100 points of regaining its all-time high. While America's economy looks in better shape than much of the rest of the world, the disconnect between investors' optimism and weak earnings makes it difficult to be bullish on US shares (see page 6). We favour Europe, Japan and some emerging markets, which all look more reasonably valued.
Commercial property
Out of steam?
UK commercial property sales fell by almost 60% month-on-month in February, to £2bn. This could reflect uncertainty among foreign buyers over whether the UK will vote to leave the European Union. But it may also imply that the strong capital gains from rising values in recent years are coming to an end, meaning future returns are likely to be driven by rental income.
Gold
A quiet month
After a strong start to the year, gold finished March little changed at around $1,240 per ounce. Another strong surge looks unlikely for now, but gold could benefit if inflation starts to pick up and the Fed appears to be dragging its heels.
The MoneyWeek investment trust portfolio
| BH Macro | BHMG | 15/06/12 | 1,948p | 11/10/13 | 2,056p | 5.5% | 5.50% |
| Caledonia Investments | CLDN | 11/10/13 | 1,830p | n/a | 2,280p | 24.59% | 33.27% |
| Personal Assets | PNL | 15/06/12 | 36,000p | n/a | 36,800p | 2.22% | 9.08% |
| Scottish Mortgage* | SMT | 15/06/12 | 642p | n/a | 256p | 99.38% | 109.38% |
| Finsbury Growth | FGT | 15/06/12 | 331.75p | n/a | 595p | 79.35% | 94.22% |
| Capital | RCP | 15/06/12 | 1,238p | n/a | 1,620p | 30.86% | 39.49% |
| 3i Infrastructure | 3IN | 15/06/12 | 124p | 18/09/15 | 167.5p | 35.08% | 60.39% |
| Law Debenture Corporation | LWDB | 18/09/15 | 503.5p | n/a | 457.5p | -9.14% | -7.00% |
| Portfolio return** | Row 8 - Cell 1 | Row 8 - Cell 2 | Row 8 - Cell 3 | Row 8 - Cell 4 | Row 8 - Cell 5 | 44.81% | 56.99% |
| FTSE All Share | Row 9 - Cell 1 | Row 9 - Cell 2 | Row 9 - Cell 3 | Row 9 - Cell 4 | Row 9 - Cell 5 | 18.15% | 34.48% |
| MSCI World*** (excl. EMs) | Row 10 - Cell 1 | Row 10 - Cell 2 | Row 10 - Cell 3 | Row 10 - Cell 4 | Row 10 - Cell 5 | 47.43% | 62.05% |
| MSCI World*** (incl. EMs) | Row 11 - Cell 1 | Row 11 - Cell 2 | Row 11 - Cell 3 | Row 11 - Cell 4 | Row 11 - Cell 5 | 40.61% | 54.60% |
| * Return adjusted for 5-for-1 stock split on 30/6/14 |
| ** Assumes BH Macro holding rolled into Caledonia |
| *** Returns in pounds sterling |
| BH Macro | BHMG | Row 0 - Cell 2 | Row 0 - Cell 3 | Row 0 - Cell 4 | Row 0 - Cell 5 | SOLD 11/10/13 | Row 0 - Cell 7 |
| Caledonia Investments | CLDN | 2,311p | 2,821p | 22.1% | -26.28% | -19.7% | 2.3% |
| Personal Assets | PNL | 33,675p | 36,552p | 8.5% | 6.46% | 0.7% | 1.5% |
| Scottish Mortgage | SMT | 138.7p | 263p | 89.6% | -8.02% | -2.57% | 1.1% |
| Finsbury Growth | FGT | 328.2p | 594p | 81.0% | 1.07% | 0.1% | 2.1% |
| Capital | RCP | 1,211p | 1,550p | 28.0% | 2.18% | 0.2% | 1.9% |
| 3i Infrastructure | 3IN | Row 6 - Cell 2 | Row 6 - Cell 3 | Row 6 - Cell 4 | Row 6 - Cell 5 | SOLD 18/09/15 | Row 6 - Cell 7 |
| Law Debenture Corporation | LWDB | 461p | 525p | 13.9% | 8.5% | -12.3% | 3.7% |
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