Rothschild Private Bank has said it is positive on hedge funds, commodities and gold in its asset allocation for April, and recommends a low allocation to bonds, cash and equities, while holding a neutral position in real estate.

The firm maintains a strong belief that hedge funds will continue to perform well and suggests equity long/short funds as an attractive alternative to conventional long-only investment in equities.  Rothschild has also maintained the view that global macro/trading managers should perform well at a time of ongoing uncertainty and offer useful diversification in an investment portfolio.

The firm also suggests an overweight position in commodities, as they are real assets and should benefit from high levels of liquidity and growing fears on inflation.  Rothschild is bullish on gold stating that the fundamentals behind most paper currencies are very weak - this being one of many factors supporting the investment case for gold.

In regard to equities, the short-term outlook is fairly mixed in Rothschild’s view and it continues to favour developed over emerging markets.  The firm believes that valuations are generally fair and equities remain attractive when compared with bonds, however, numerous factors are a cause for concern.  These factors include oil prices, inflation, interest rates, Europe’s debt problems, and unrest across the Arab world persuading Rothschild to take an underweight position in equities.

Meanwhile, the firm’s recommendation of a low allocation to bonds remains based on the view that government bonds are expensive and overvalued, particularly at a time when the risk of inflation is rising and when higher interest rates are on the horizon.  The firm suggests a focus on higher-quality and short-duration securities and that investors remain wary of bonds issued by weak eurozone governments.

Corporate bonds, on the other hand, seem to be well supported, although yields are now fairly low by historical rates, the firm said.

Rothschild’s neutral position in real estate is backed by the fact that re-financing property is far from easy in the US and much of Europe, while, against a backdrop of loose monetary policy, government indebtedness and growing fears of inflation, property should be attractive as a tangible asset with fairly predictable cash flows.

In China, Rothschild mentions that industrial production is rising at an annual rate of almost 15 per cent, while producer price inflation accelerated further in February, to an annual rate of 7.2 per cent.  However, other indicators, including electricity generation, steel production and railway freight volume seem to be pointing to a slowdown in the economic momentum, said the firm.