A preference for risk assets

The market lows of early March were followed by a swift turnaround in risk appetite, fuelling a sharp rally in equity and credit markets in April and May, ahead of some profit taking in June.

Sentiment benefited from some improved economic data, progress in sorting out the western banking system, better than feared corporate profits, attractive valuations and the high levels of cash available for investment. In contrast, government bonds laboured under supply concerns. Within our balanced portfolios, we are overweight in risk assets. Government bond yields have risen on fears the increase in the money supply due to quantitative easing could fuel a pick up in future inflation. The recent rally in commodity prices has also been a concern, with the oil price surging 30% in Ma...