Baring Asset Management has announced that its flagship multi-asset institutional offering, the Baring Dynamic Asset Allocation Fund, has grown to over £2.8 billion since it launched on 17 January 2007, with 101 clients invested. The fund has performed well in the global economic recovery, although Barings warns that the recent rally in equity markets could be short-lived and a tactical approach to asset allocation will become increasingly important in 2011 while also maintaining a long term strategic outlook.

Since inception the fund has returned 8.18% annualised. This compares to the FTSE All Share index which returned 2.45% over the same period.

Andrew Benton, Barings’ Head of UK and International Institutional Business, comments, “The DAA Fund has continued to receive a tremendous reception from the market and in 2010 we won 39 mandates worth over £790 million. We have a very strong track record that demonstrates our ability to swiftly move in and out of asset classes as our scenario-based economic analysis and outlook dictates. As a result we are growing our reputation among pension schemes for successfully managing to preserve capital while also capturing returns, a key trustee objective.”

During the third quarter of 2010, the DAA fund was well-positioned to benefit from one of the strongest global rallies witnessed at any time in the last ten years. Performance in the fund was driven by strong asset allocation with an exposure to UK and European equities continuing to generate attractive returns and an international bond portfolio generating returns ahead of world government and foreign corporate bond markets. However, Barings warns that this favourable environment cannot last long, and recommends that a tactical asset allocation approach should be employed if investors are to successfully navigate the global economic volatility.

According to Percival Stanion, Head of the Multi-Asset Team at Barings, “We believe there are several reasons to sound a note of caution on the global economy and we expect continued volatility and higher correlations across markets throughout 2011. However, although we face continued economic instability, largely because none of those divergent forces responsible for last year’s volatility have been reconciled, the economic recovery does seem to be gathering pace. Growth in the US, Europe and Japan has stayed on course with fairly healthy growth figures of 2.5% - 3% and with business confidence surveys hitting new highs in Europe and America we should see critical improvements in unemployment rates coming through. We continue therefore, to cautiously increase our allocation to equities. Crucially though, we think this growth will undoubtedly be accompanied by higher inflationary pressures which will mean more bad news for government bonds.

“Although we go into 2011 acknowledging the recovery is gathering pace, we remain mindful that for some years to come we, as investors, will be responding to an unappetising mix of completely inconsistent and unsustainable policies. These include:

• Germany’s insistence on a European model that involves massive fiscal retrenchment in the peripheral economies of Greece, Ireland, Portugal and Spain with no fiscal transfers from their Euro neighbours
  
• The insistence of the European Central Bank on withdrawing the emergency liquidity measures adopted back in 2008
  
• The extension of the Bush tax cut clauses
  
• The second round of quantitative easing in the US which is threatening Fed credibility in the long term, as well as over-easy monetary policy in the face of rising inflation in some emerging economies such as China and India.
  

“We remain positioned to benefit from the recovery while poised to react to the unavoidable knocks that will come from living with these impossible and unsustainable policies. Tactical asset allocation has never been more critical.”