An Allocation To Ponder

I meant to get to this earlier in the week but the reader question posts and flying on Wednesday got in the way of it.

On Monday on European Closing Bell the guest investor was Juerg Zingg from Q Investments. Mr. Zingg did the interview from the stock exchange in Switzerland so I assume he is Swiss.

He lamented the short term focus people seem to be giving toward technicals and said that most markets have just broken the "last Fibonacci line" and he expects more downside pressure.

In that light his current allocation is 30% in traditional markets, 40% in alternative investments and 30% in real assets. The graphic on the screen indicated that he expects this mix (more specifically his application of this mix) to return 8-14%.

He does not like bonds currently allocating just 10% to bonds as part of the traditional markets portion. Real assets include 20% in commodities and the other 10% includes private equity and wine funds (not sure why these are real assets and not alternative but this is what the graphic said).

The 30% for traditional markets breaks down as US 35%, Asia 25%, Europe 25%, emerging markets 15%. Within equities he prefers materials, drillers and ag stocks. He is warming up to tech. I realize these number don't quite jibe with the bond number above--I am just going by the graphics used but that isn't really the interesting thing.

He has very little equity market exposure. He thinks world growth will be 3% this year and next, compared to about 5% last year which leads him to conclude that demand will be there for the groups mentioned above that he likes.

The sort of growth level implies an equity environment that is not horrible (even if it is not great) but still only 30% in traditional markets. I would read that as a comment on volatility expectations but that is just my read as the question wasn't asked.

I've written a lot of posts that try to explore and create awareness of alternative investments (assume a liberal definition) as I am convinced they can help create different types of effects within a diversified portfolio. Hearing how other people utilize these sorts of things makes for a better understanding for our own use but I would urge caution WRT to a number as big as 40% like Mr. Zingg uses.

While I cannot know his intention or exact opinion going that heavy could be thought of as giving up on the stock market. In my opinion global equity markets are simply enduring a cyclical decline (the US might be a little more serious but is not Japan). If global markets are simply in a cyclical downturn then they will start a new bull market and when that happens the move will be big and most alternative ideas would lag at that time.

Keep in mind that up a lot doesn't happen very often (just one year this decade) and while it is ok to lag those it would be bad to miss them. Market up 26% you up 20% would be a lag. Market up 26% you up 8% being too heavy in alternative assets would be a miss IMO.