S&P urges caution over fixed interest portfolios
Standard & Poor’s (S&P) is advocating investors take relatively short durations within fixed-income portfolios or a higher allocation to cash due to prevailing interest rate uncertainty.
S&P investment consulting head Simon Ibbetson said it is “extremely difficult to forecast whether expected inflation or slowing growth will drive interest rate decisions and long-term yield movements”.
“Unchartered territory always involves uncertainty and right now markets have not left much leeway in the pricing of risk.”
Ibbetson was commenting on the findings of a new S&P report, Asset Allocation: Standard & Poor’s Economic & Investment Market Strategy Report — June 2006.
The report found property outperformed other asset classes in June, with returns of 5 to 6 per cent in the month, more than making up for falls in May.
It found equity continued its fall in the first three weeks of June before bouncing back strongly in the past week to finish higher for the month.
Hedge funds had a “mildly positive month, with an increase in corporate activity continuing to prove especially fruitful for merger arbitrage managers”.
Fixed-income markets were flat, the report found, with slight easing of yields just offset by income payments.
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