Correlation between asset classes weakening benefiting diversification says Carmignac Gestion

11th April 2013

The reduction in global systemic risk means that asset classes are diverging significantly again says Didier Saint-Georges, member of the investment committee at Carmignac Gestion.

He writes: “One of the major benefits of the reduction in systemic risk since last summer has been the weaker correlation between asset classes. Individual economic performance in each region can now be reflected accordingly on the markets. Whereas the level of correlation between developed and emerging markets was still around 73% in 2012, it is now only 27%.

Between developed markets themselves, the correlation has fallen from 47% to 28%. Between emerging markets it has loosened from 41% to 19%. This change is decisive. While it does not remove the need for tactical fund management, being highly responsive to changes in the European situation, it nevertheless justifies diversified, global fund management more than ever”.

He has also provided this view of the main asset classes below.

Currencies: We have maintained our full hedging of the yen in the light of the Bank of Japan’s asset buying programme.

Fixed income: We think that this chapter will end with a stricter ranking of issuers, benefiting our positions, which are concentrated on the highest ratings. Our portfolios’ modified duration has been kept at modest levels with US and German government bond prices already high.

Equities: Our global funds, Carmignac Patrimoine and Carmignac Investissement, have increased their positions in the two regions in which current trends are most encouraging: the US and Japan.

Commodities: Heavy burdens remain: the nature of Chinese growth, persistently mediocre global growth, and high reserves. Our funds have consequently been refocusing their positions on natural resources enjoying stronger trends, such as energy (especially unconventional energy) in the US, storage and transport companies, chemicals companies, and refiners who are benefiting from significantly lower energy costs. Carmignac Patrimoine and Carmignac Investissement have sold their gold mining stocks, on which the opportunity costs had become too high.


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