We have taken advantage of the rise in stock markets over the last 2 months to reduce the equity allocation in the BL-Global Flexible fund even further. As at beginning of September, the fund's net equity weighting is 22 % (41 % of which 19 % is hedged through the sale of futures). As I mentioned in my article from 14 August in the "analysis" section of the blog, I think that the economic fundamentals do not justify the rise in stock prices that we have seen since March. A lot of investors are frustrated to have missed out on this rally, even though in March, it would habe been impossible to convince them to buy equities. This reminds one of one of the 10 market rules of Bob Farrell, the former strategist of Merrill Lynch: "Fear and greed are stronger than long-term resolve". The geographical allocation of the equity portfolio is 20 % Europe (net exposure: 5 %), 10% North America (net exposure: 6% ) and 11 % Asia (net exposure: 11 %). The portfolio's sector allocation remains defensive, particularly in Europe where dividends furthermore remain a major investment theme.

The expectations of a strong economic recovery that are behind the rebound in equity markets have not led to a sell off in government bonds and long-term bond yields are actually lower today than at the beginning of July. The fears of inflation that were behind the rise in bond yields during the second quarter have been laid to rest (temporarily?) as the recent statistics on consumer and producer prices have shown the depth of the deflationary trends that the world economy is facing. The renewal of Ben Bernanke's federal Reserve Chairmanship should also mean that short-term interest rates will be kept near zero for an extended period of time. The bond allocation in the BL-Global Flexible fund currently stands at 46 % of which 38 % are government bonds and 8 % investment grade corporate bonds. 40 % of these bonds are denominated in euros, the remaining 6 % being in the Norvegian krone, the Australian dollar and the Brasilian real.

In sum, the asset and currency allocation in BL-Global Flexible looks like this: