Asset Risk Consultants, the Guernsey-based investment consultancy, is predicting the greatest dispersion of returns across the asset classes in the third quarter of 2007 since the beginning of its Private Client Indices data series in 2003. This follows a second quarter in which bond markets struggled while alternative investments, such as property and hedge funds, performed strongly. These results showed, said ARC, that it was those managers that most completely embraced multi-asset class investing that performed best in the first six months of 2007. Traditional balanced portfolios of bonds and equities meanwhile, struggled to match the returns from cash and may even have delivered a negative return for the period. The PCI’s examine the actual returns being generated by investment managers for their UK discretionary private client portfolios. There are four Sterling PCI indices based on the risk-profile relative to equity markets – Cautious, Balanced Asset, Steady Growth and Equity Risk. The four PCI performance series are based on real performance numbers provided by 23 participating investment managers. This leaves investment managers free to use any and all investment strategies, vehicles and structures in the pursuit of the maximum return per unit of realised volatility. As such they reflect the actual returns that a private client should expect for a given risk appetite. In the third quarter, according to ARC’s estimates, gains fell to 1 per cent, 0.5 per cent, 0.1 per cent respectively for the risk profiles Cautious, Balanced Asset, Steady Growth, with Equity Risk posting a negative 0.5 per cent. Most private clients are invested mainly in the Balanced categories. This reflects the turmoil of the financial markets in June and July when all four risk profiles posted negative results, and the subsequent strong rebound in the equities market in September, which has seen ARC’s PCI estimates return to the black with returns of 1.57, 2.01, 2.47 and 3.02 per cent respectively. As a result, the cumulative spread between the four profiles at the end of the third quarter is predicted to narrow to between 4.6 per cent for Cautious and 6.4 per cent for Equity Risk. At the end of the second quarter it stood between 3.5 per cent for Cautious and 6.9 per cent for Equity Risk. “It has been a very interesting quarter based on the sheer diversity and volatility of asset class returns,” said ARC director Daniel Hurdley. “Managers who held their nerve in July and August were rewarded in September. Those that de-risked their portfolio were caught out.” The figures for the third quarter will be finalised and published in mid-November.