Barclays Wealth

Equities are likely to offer the best returns in the months ahead

Barclays Wealth investment calls for February include:

• V-shaped profits recovery underpins equities: stay overweight
• Cash remains unattractive
• Continue to short gold
• Opt for Short duration Corporate Bonds over long duration or governments
• Favour UK Commerical real estate

Recommendations

Investors should stay overweight equities

Investors are understandably nervous in the wake of revived uncertainty regarding financial regulation, the pace of global monetary tightening and possible spill over effects from the Greek bond market, but we still feel that risk assets, particularly equities, likely offer the best returns in the months ahead. In our view, equities should be both an overweight in balanced portfolios and the first port of call for investors wishing to diversify away from cash.

Why equities?

1. The vigorous V shaped recovery in corporate profits with cost cutting being slowly augmented by resumed modest top line growth
2. Short-term interest rates are unlikely to start rising soon and investor liquidity remains high
3. Even after the rally prospective valuations look undemanding - partly because of the profits rebound but also because equities fell such a long way to begin with

Investors should -

• Tactically choose developed markets over emerging markets, given valuations
• Consider convertible bonds, which offer lower-composure investors a high yield, low volatility way of getting equity exposure

Opt for Short duration Corporate Bonds over long duration or governments

Within fixed income portfolios we continue to favour short duration bonds over long and where possible corporate over government exposure. There has already been some increase in long-dated yields and the gap between them and money-market rates has rarely been exceeded in the memory of most market participants. Nonetheless we think the rise in yields will continue and to a greater extent than is priced in to the futures market.

Continue to short Gold

We believe that gold is now significantly overvalued relative to fundamentals.

• Investors should short gold in a way that limits possible losses as overvaluation may not correct immediately. Potential strategies include buying long-dated put options on one of the gold-based ETFs or a structured note.

Continue to favour UK Commercial real estate

We remain positive on direct investment in UK Commercial property, in contrast to our views on both UK residential property, and US commercial property.

• The investment case has not weakened materially in the two months since we first advocated it. In some high-profile hotspots yields have fallen to levels that are no longer attractive, but overall we think that specialist managers can still add value.

Aaron S. Gurwitz, Head of Global Investment Strategy at Barclays Wealth, said:

"We believe in active management stands a good chance of success in all regions in 2010 but especially in Asia. We want very much to stay in involved in these markets but regional valuations are now fully valued or expensive so selectivity based on local expertise is essential"

Kevin Gardiner, Head of Investment Strategy, EMEA, said:

"The choice of corporate over government bond exposure reflects several factors: The relative balance sheet and cash flow strength of many (non-financial) companies to begin with: the probability that the Fed and the Bank of England will stop buying government bonds in 2010 as Quantative Easing ceases. Also the fact that corporate spreads - particularly high yield - offer a buffer against the likely rise in long-term interest rates that we envisage."

For further information contact:

UK

Lucy Davidson
+44 (0) 20 7114 8947

Will Bowen
+44 (0) 20 7114 8434

US

Monique Wise
+1 212 526 3568

Tiffany Alcorn
+1 212 526 7992

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