On 18 May, the net equity allocation was 36%. BL-Global Flexible held 79% of its assets in equities, of which 43% were hedged through the sale of futures. Using derivatives to achieve a net equity allocation of 36% provides two advantages over a more traditional solution of ‘simply’ holding 36% in equities:

- It prevents us from having to invest 64% in fixed income assets, which currently offer less and less interest;

- It allows us to take advantage of the fact that after having strongly underperformed in the 2009 stock market recovery, quality companies (which we like to own) are currently trading at attractive levels to the overall market.

The good performance of the bond markets was used to gradually reduce our allocation to bonds to 17% of the portfolio.

Asset allocation

(1) of which 43% is covered through the sale of futures

Including currency hedging, BL-Global Flexible is currently invested 43% in euro and 57% in other currencies:

Currency allocation (after possible forward exchange contracts)

The graph below compares the performance of BL-Global Flexible with a money-market investment in euro, an investment in eurozone government bonds (represented by the JPM Bond index) and an investment in international equities (represented by the MSCI World index in euro). Given that the objective of BL-Global Flexible is to provide traditional wealth management, it is in my opinion logical to compare its performance with the performances of the asset classes used in this portfolio (money-market investments, bonds and equities) rather than a specific index.

To the extent that the volatility on the stock markets rose once again in 2010, it is interesting to compare the performance of BL-Global Flexible with the MSCI World index (international equities) in the first months of this year. The following graph shows that the fund held up well during the corrections in January/February and April/May.

Finally, it is useful to note that with its current structure, BL-Global Flexible is likely to perform well in an environment in which quality companies are outperforming the market (either because their price is rising more than the market, or because it is falling less than the market). I think that the conditions are right for this to happen given that:

- As noted above, quality companies underperformed in the market recovery between March 2009 and the start of 2010, and are today correctly valued in absolute terms and attractively valued in relative terms (i.e. compared to the market overall).

- After the second half of 2009, which was marked by expectations of economic recovery and the end to the financial crisis (which was particularly good for cyclical and financial stocks), events in the past few weeks have shown that the economic situation remains very fragile. In such an environment, a flight to quality by investors would make sense.