From equities to property, hedge funds to commodities, most institutional investors made sustained positive returns, fuelled by historically low real interest rates.
However, since August 2007, with the credit crisis emanating from poor sub-prime loans in the US and the drying up of inter-bank liquidity in the west, global financial markets have become more volatile. Some asset classes are now showing significant falls, notably in property and bonds.
In such uncertain times, strategic asset allocation for charities, endowments and foundations is even more important in the bid to ensure positive real returns.
A natural reaction in such economic conditions is to increase weightings in cap stocks, gilts and cash. But this could mean missing out on investments that might boost portfolio returns.
Investing in commodities is a case in point. In the past five years, commodity prices have risen. Gold recently crossed the £406 an ounce mark last seen in 1980, while oil spot prices have reached £51 a barrel.
So is it too late to jump on the commodity bandwagon, or have the substantial gains already been made?
In making long-term asset allocation decisions there is a strong case that investing in commodities will bring solid returns. Driving long-term global demand for commodities is the insatiable appetite of China and India to fuel their double-digit growth rates, along with the increasing affluence of Asia and the Middle East and their demand for gold and petrol to run their cars.
On the supply side, years of under-investment in mining after the last 20-year commodity depression in the 70s and 80s has made bringing new supply on-stream both expensive and time-consuming.
An equally compelling case can be made for rising prices in soft commodities such as wheat, coffee and orange concentrates.
These factors could justify an allocation of 5 to 10 per cent into commodities, perhaps through the low-cost exchange-traded commodities that have cropped up recently, which have the added benefit of diversification and reduced correlation to equity markets.
- In uncertain times, strategic asset allocation is crucial
- There is a strong case for long-term investments in commodities
- Rising prices in soft commodities could justify an allocation of 10%.
- Biman Mittra, director of finance and administration at Coram