Tactical Asset Allocator update

Our Tactical Asset Allocator portfolio has got off to a storming start since it was launched last month.

There has been little overall movement in equities outside of the UK and certainly not much in emerging markets.

But the best performer in the portfolio by far was the ETFS Physical Silver ETF (PHSP). This rose by 18 per cent in sterling terms, thanks to a resurgence in precious metals prices.

This followed the European Central Bank initiative on official eurozone bond purchases and a further bout of quantitative easing (QE) in the US. The potentially inflationary consequences of this latter move, significant because of its seemingly open-ended nature, have provoked a sharp improvement in prices of precious metals.

Silver scores on a couple of counts. One is that its price setback earlier in the year was much sharper than that of gold, and therefore its scope for recovery could be greater. In sterling terms silver’s price hit £28 an ounce at its high point in April 2012, and it could go back there.

The second reason for the surge in silver is that the purpose of the latest bout of QE in the US is to get the economy firmly on the path to recovery, which if successful is likely to boost industrial demand for silver, while the high price of gold is also probably boosting jewellery-related silver demand.

For these reasons we are increasing the weighting of the portfolio to silver, adding 100 shares in the existing silver ETF holding, to take the total number up to 250 shares. This raises the weighting in precious metals and commodities in the portfolio to 7.1 per cent and decreases the cash component to 8.2 per cent.

We should not have any illusions. Silver is volatile. Nonetheless the move we have made here only raises the portfolio’s book cost to £18.80, still substantially below silver’s 2012 high and also less than the current price at the time of writing.

See the September edition (out in shops now) for the reasoning behind this portfolio and the forthcoming October edition of Money Observer for the full update. To view the current standing of the portfolio visit http://www.moneyobserver.com/portfolio/tactical-asset-allocator

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