Beware the elephant on the seesaw

Asset allocation has been child's play since Labour came to power in 1997.

That is not to say it has been easy for investors, but rather asset allocation over this period can be likened to that most basic of playground apparatus - the seesaw. This can be clearly seen in Figure 1 below, which shows the capital return of gilts and UK equities since 1997. These core elements of a traditional portfolio have shown a persistent negative correlation over this period, and while neither has delivered a significantly positive capital return, the price move of one has typically offset the other. This has provided capital stability for investors in the same way a child sta...