Asset Allocator has extensively discussed the notion that with bond yields higher, alternatives may play a much less crucial role in portfolios.

Robert Alster, chief investment officer at Close Brothers Asset Management, is keener on fixed income than he has been for years, but isn’t abandoning alternatives entirely. 

He said that after years of “ignoring” bonds, “they are now part of every portfolio” as higher yields mean there is an income to be had for clients for whom that is a priority, while the inverse correlation with equities has been restored.

In terms of alternatives exposure, Alster allocates to a series of hedge fund strategies, saying: “We currently see attractive opportunities for hedge fund allocations to capture ongoing volatility and pricing inefficiencies across global markets and there continues to be a disconnection between listed and private asset projects which offers an opportunity for long term returns.”

Turning to his equity book, he is keen on Japanese equities due to the economic drivers in that market being different to those in the rest of the developed world, with inflation rising there when it is falling elsewhere, indicating that its equity market returns may be driven by different factors than those of other developed markets, providing an element of diversification. 

Asset Allocator's database shows the average exposure to Japanese equity funds among the allocators we cover has risen modestly over the past year, the current level being 3.5 per cent, from 3.2 per cent a year ago.