Multi Asset Strategic Fund shifts back overweight equities

Trevor Greetham, portfolio manager of Fidelity's Multi-Asset Strategic Fund, has increased the fund's equity weighting to a small overweight, having been significantly underweight the asset class since Q3 2007.

"The current rally differs from the sizable but short-lived bear market rallies before it", comments Mr Greetham. "This one is supported by a broad improvement in macro-economic data and financial conditions. Business confidence is beginning to rise in all regions of the world, with sentiment on some measures the least depressed at any time since the interbank markets dried up in August 2007. The enormous global inventory liquidation of the last six months looks to be over and an industrial up-swing is increasingly likely.

"A typical up-cycle lasts twelve months and is a big positive for corporate earnings. Powerful inventory rebuilds in 1975 and 2003 saw the S&P rise 50% in six months. Industrial recoveries triggered three sizable bear market rallies in Japan in the 1990s despite falling land prices and a contraction in bank balance sheets.

"Major risks remain and inventory cycles tend to fizzle out without an upturn in final demand. However, stronger production should create jobs and buy time for the monetary and fiscal stimulus already in the pipeline to take effect. We're already seeing some very positive news in the shape of an improvement in credit markets and bank lending attitudes.

"All this signals an increased likelihood of us entering the disinflationary Recovery part of the Investment Clock cycle, which is an ideal backdrop for equities. With this in mind, I have moved equities up to a small overweight in the Multi Asset Strategic Fund. A confirmation signal of recovery in the form of falling unemployment rates would trigger a more aggressive overweight.

For now, I have removed small underweight bets on global property and financials - sectors that do best in a successful reflation and moved emerging markets and Asia overweight. I continue to favour US equities as I expect the US economy to be the first developed economy out of the downturn. Within sectors I have added to my large overweight in the interest-sensitive Global Consumer sector, which has been outperforming since the middle of last year and shifted away from defensive sectors.

"Elsewhere in the portfolio, I have reduced bonds and cash, moving some government bond exposure into credit and high yield where I am now modestly overweight. I remain underweight commodities but reduced an overweight in precious metals in order to add to industrial metals."