ASSET ALLOCATION

Look for a bounce in equities in the second half of the year ...

"During times such as these one is tempted to jump into knee-jerk reaction mode rather than remain with the bigger picture.

"We and our managers, IMS, prefer to keep our eyes focused on the broader issues of global trends, both market and economic, whilst making sure we don't trip up too badly on short term issues.

"In the longer term we continue to believe there is substantial value in global equities and that both investment demand and broadly benign economic conditions should see us continue in the longer term bull trend experienced over the past few years.

"We prefer larger capitalisation stocks and favour growth over value. Will we finally see the major reversal we have been expecting ever since the dramatic fall of growth stocks in favour of value following the bursting of the tech bubble in 2000?

"We still like most UK stocks and whilst recent falls have been mainly within the financial sector this should give us some great opportunities to ride them back up as the credit crisis recedes and the banks rebuild their balance sheets (with foreign help).

"With a falling pound, there is the added currency kicker on holding foreign stocks although the dollar means care should be taken in dollar markets.

"The property sector has finally had its bubble pricked (not really burst, just pricked) and we feel it will move sideways throughout the year.

"With interest rates falling, there is some short term benefit in the fixed interest market but this will probably be short-lived.

"The credit crunch crisis has been so contagious and this has simply hastened the trend for cash rich economies such as the Middle East and China to take stakes in major Western institutions in the form of welcome bail-outs.

"This is an inevitable trend which has been on the cards for very many years and is likely to pick up speed as the emerging markets continue to achieve substantial growth.

"It is this growth which is stoking inflation - very specifically, within commodities. Raw materials are in great demand and we are seeing excessive price pressures in many areas, especially oil, metals and other essentials used in building and operating new industrialisation.

"Wheat and certain other foodstuffs are also exhibiting price pressures as nations quickly improve their diets as they become wealthier. This very specific inflation has yet to feed through into general prices or wages and still may be avoided.

"So we remain broadly positive. There is a great risk in being underweight in equities as we feel a bounce is inevitable - probably in the second half of the year but maybe much sooner. So hold on tight during these volatile times and enjoy the ride!"

Paul Wilcox,
Chairman & Technical Director, WAY Group.
8th February 2008.

Press Release Date: 8th February 2008.

Please Note: The above article first appeared in Investment Week on 4th February 2008. Reproduced with kind permission.

Note: This commentary has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This information is supplied to you in confidence and you may not pass it on to any other party without prior written consent. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this commentary. The commentary does not constitute investment advice or a recommendation to purchase or sell any security. Neither the author nor WAY Investment Services Ltd accept any liability whatsoever for any loss or damage arising in any way from any use of or reliance placed on the commentary. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.

Press Release Date: 8th February 2008.