Merrill Lynch highlights investor return-driving opportunities in ­different undervalued asset classes, reports Elisa Trovato

The latest in PWM’s European Fund Series of afternoon conferences will take place at the Ritz Hotel in Madrid on 11 March.

Sebastian Dovey explains why companies such as Fieldpoint see ­private banking as a viable wealth-creation opportunity

Sebastian Klein has rolled out some fairly ambitious plans during his time as chief executive of Cominvest. Yuri Bender chats with the man behind the big ideas and asks whether his quick-change company strategy will ultimately deliver long-range, steady business expansion

At this time of the year, every portfolio could do with a bit of tightening up. Elisa Trovato scans the European markets for some of the best investment tips for 2008

Having experienced a positive market environment for both the economy and equities for some years now, the climate is starting to change. Among the biggest changes is that earnings growth is ­decelerating and financial companies are suffering the consequences. There are ­indications of a re-pricing of risk, while volatility has returned to its old levels, much more in line with long-term averages. And since not all stocks will do well, investors will seek out stock pickers who can make a difference.

Whether it is down to a lack of imagination or of distribution power on the side of fund houses, actively managed products are being sidelined in many parts of Europe in favour of synthetically produced investment banking products. Elisa Trovato speaks to some of the more innovative and successful providers

Traditional asset management and structured management can only ­benefit from pooling their expertise. Romain d’Hébrail explains

Does diversification into areas such as consumer goods and financials make US equities safer or less risky? Simon Hildrey talks to the leading managers to find out the answers

Simon Shapland of RBC Dexia Investor Services explains why global asset managers need to take a fresh approach to fund sales if they want to win in Asia

Luxury homes have not always been regarded as an asset class, but upwardly mobile, middle-class investors have changed all that – which is ­perhaps why these properties have been outperforming non-luxury dwellings for the past five years. Martin Steward investigates

“For a long time nobody regarded luxury homes as an asset class – they were just a luxury,” says Vere Bruce-Gardyne, managing director of the estate agency division of Letterstone, a property developer and fund manager with projects in Central Europe and the Caribbean. “That has changed over the last five years as the market has opened up to the expanding global middle class and their increasing ability to travel.”

Nat Mankelow talks to a rising UK boutique provider of structured products in a market that is showing increasing enthusiasm for the type of investments already popular elsewhere in Europe

“With equity markets on the ­downtrend, and volatility on the rise, we prefer a well-diversified portfolio. The duration of the bond portion has been increased, but we remain ­convinced that well-managed total return products can be a significant source of non-correlated return. On equities, we have chosen some very active managers trying to ­generate alpha with both bottom-up and top-down ­strategies. The market conditions suggested that sectors plays like MLIIF W.GOLD$ and ING Invest Utilities I and funds focused on large caps with global appeal are able to cope with an economic downturn, like Morgan Stanley Global Brands and M&G; Global Leaders.”

“We replaced M&G; American Fund with Schroder ISF US Small & Mid Cap Equity, because the latter has been performing slightly ­better. We feel comfortable with this investment and do not believe in a hard-landing recession scenario of the US ­economy as there is much potential for other future interest rate cuts by the Federal Reserve Board. Concerning European Equities, we bought HAIG MB Max Value, which convinced us with a 10 per cent performance YoY. On the bond side, we opted for an ­inflation-linked bond protecting against global inflation threats.”

“There is no doubt the world economy will slow down in 2008, but the key question is, ‘Will the US economy fall into recession?’ The ­market is reacting aggressively to any signs that the world’s largest economy will retrench in 2008, as any ­economic report or Federal Reserve announcement is analysed for directional ­evidence resulting in volatile market shifts. We have ­introduced a new UK fund – the Cartesian UK Equity 130/30 fund – a new generation of funds able to take advantage of both rising and falling stock prices.”

“The portfolio was up 0.5 per cent in December. We continue to see very poor value in bonds, ­especially as it appears we will get huge reductions in the US short-term rates, thereby increasing long-term inflation risk. We have removed some of the bond exposure and bought a ­listed absolute return fund – Dexion Absolute Ltd. On the equity side, we have reduced exposure to the ‘new’ EU member states, as we see ­increasing problems with inflation in certain countries, and have added Evli Greater Russia. The fund is exposed to the domestic Russian economy, which is growing rapidly because of huge infrastructure investments (financed by oil taxes). We expect the uncertainty in the financial markets to continue.”

“In the last couple of months, we have made some changes to our portfolio. We removed two funds – DWS Alpha Rent and Invesco Global Bond – and inserted a new fund, DWS TR Bond. We also increased the weight of Mellon Global Bond fund. Despite the changes, the asset allocation of the portfolio hasn’t varied. Equity market is still quite volatile, so we prefer to maintain our actual position, waiting for a clearer scenario. Nevertheless, we are always monitoring the ­market, looking for new funds that could be included in our portfolio. Each potential change in the portfolio will derive solely from fund picking.”

“High grade and high yield bond spreads widened during the last few weeks of the month as a ­slowdown in US growth was confirmed. Accordingly, we cut our high yield exposure (PAM Bonds Higher Yield) by implementing a flexible euro ­government fixed-income fund – Raiffeisen 313 Trend Follower Bonds, which is run through a quant model that follows strong trends on euro government bonds. We cut State Street Euroland Equity Fund, enabling us to finance the acquisition of Uni-global Minimum Variance Europe.”

“Our asset allocation continues to be 40 per cent equities, 40 per cent ­alternatives and 20 per cent fixed income. In November we made ­significant changes to the portfolio and this has had a ­positive impact. Of particular note is the Schroders Agriculture fund, which was returned over 10 per cent since purchase. We preferred this fund to a ­passive ETF for this exposure, given the negative roll yield on many ETFs. Also, the ability to get hedged exposure to this area was interesting. We also reduced UK equities ­significantly, which helped portfolio returns given the poor performance of sterling in particular.”

“Our balanced portfolio keeps its underweight equity position. Two main holdings have been reduced. First, we redeemed the remaining position in the CAAM fund because its volatility surged during the second half of 2007. Second, our reducing the JOHCM holding is mainly on an asset allocation basis: a big part of its holdings is on medium-to-small caps, an area we believe has entered a difficult cycle. The proceeds have been left in money markets. Going forward, the main opportunities should be found in emerging markets and some related themes – as natural resources and infrastructures.”

“We maintain our cautious bias given the uncertainties regarding consumer spending and the amplitude of the growth slowdown. Sector rotation is strong, with big performance ­differences. The lack of visibility on equity markets leads us to increase our alternative investment exposure, which is now 40 per cent of our investment portfolio. This is ­implemented through multi-strategy funds of funds. We continue to favour large-cap equities against small cap. We also maintain a defensive growth bias. Investor pessimism is high and could trigger a short-term rally; however, some care should be taken before turning bullish again.”

“Renewed concerns about banking ­losses, allied to worries that the ­financial sector’s problems would spread to the wider economy, led to a sharp dip in markets during the previous month. Markets staged a recovery when other central banks (including the UK) joined the US Federal Reserve in cutting interest rates, and investors took heart from the active role taken by ­central banks in seeking to normalise interbank lending rates towards the year end. The start to 2008 has not been easy, with equities returning to the ‘bearish path’. That said, ­actual valuations are a reasonable proposition, if a recession can be avoided and earnings do not ‘fall off a cliff’.”

“The prospect of more rate cuts has failed to stem the sell-off, as fears of a recession caused stocks sensitive to the US consumer to plunge. Cyclicals and consumer discretionary stocks have ­suffered a miserable start to 2008. The sector entered a ‘bear market’, having fallen more than 20 per cent below its ­previous market peak. As the odds of recession have grown and credit concerns have not diminished, large-cap growth funds have been a haven for those seeking ­stability. This does not speak well for overall market sentiment, but could be a possibility to outperform the stock market in the long term.”

“2007 ended with difficult conditions for equity and bond markets, so we were pleased to be holding the Blackrock Absolute Alpha fund and the Thames River High Income and Global Bond funds, all of which bucked trends to deliver positive returns. European equities lost money but IVI and Cazenove delivered positive returns. These performances were offset by deteriorating conditions for small cap, which hit the Old Mutual Select Smaller Companies fund, where we have allocated a small weighting. For 2008, we retain our mix of funds and expect the portfolio to offer defensive qualities with flexibility for growth.

Each month in PWM, 12 top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

Today’s generation of wealthy want real-time access to, and updates on, their investments. As such, wealth managers need to find a balance between automation and offering a personal service. Peter Guest reports