At the start of the year all the investment houses like to roll out their investment plans with such confidence and aplomb. This year, you will be assured, they will have thought it through even better than before and should no doubt have a good chance of appearing to get it right. Graphs, ratios and long earnest tracts of well argued prose will back their views and inevitably will have the convincing air of credibility.

Sadly though for all the effort, thought, and no doubt cost, that has gone into it, the day it is published is also the day it is out of date. Asset allocation of client assets is a dynamic operation, and as such may vary from day to day. As events over the past few months will have clearly shown, such moves could be swift and drastic, causing significant damage before much can be done. Trying to second guess the future is a mug’s game, but you can at least take action to mitigate the situation and to try and maximise the opportunity for longer term gains and to minimise the losses.

This, as I have bored many with before, is down to a rigorous process, structure and discipline of asset allocation. Broadly spread across assets across the globe – it may sound dull, but in the longer term it has been shown to work. Yes, you can take a view and make some adjustments but fundamentally the blend of asset classes will result in a compound return reverting to a “mean” and a more predictable line.

Of course there will be exceptions and some very clever (or arguably, lucky) people will make a good call, but can you do that consistently?  All too often the damage caused by the bad calls will outweigh the benefit of the good calls. After all, a 50% drop means that you need to find a 100% gain, just to get back to where you started – not so easily done.

I was looking at last year’s asset class movements, and whilst we can all sagely nod with the benefit of hindsight, just how many of us were able to call it right at the beginning of the year, let alone judge the timing of some of the dramatic asset value swings that we saw?

So what can we learn from the change in asset values? In 2009 for example, the best performing asset class seemed to be emerging market equities – which came a very creditable third in 2010 too. However 2011 was a completely different story, and despite the siren calls of certain fund managers, this asset sector came bottom of the rankings. Similarly, take a look at Private Equity, the star of the past two years, which also flopped, to the penultimate place in the rankings.

Fashion and fads make financial fools with consummate regularity.  Reversing this same process, we should then cast a jaundiced eye over the 2011 wunderkinds and wonder if their day in the sun will turn out to be somewhat shorter than their keen proponents have been telling us. It was Index Linked Bonds that topped the list last year, but with inflation apparently on the wane for the moment, 2012 could be more challenging. With Gilt yields at record lows, their prices drove them to second place turning the “no risk yield” into a “no yield risk”. It was gold that remained in the top three, albeit at a lower return than 2010, and this has to be the bet on the chances of Armageddon. So depending on your view, gold may also have had its period of lustre (excuse the pun).

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And finally …………Protect the Pasty.

Pasties are to get protected status! Time for us all to go to Cornwall then. Cooks from around the world will head toCornwallin March for the first World Pasty Championships. The event will be held at the Eden Project, St Austell, to celebrate the popular local delicacy, which was given protected status under EU law earlier in 2011.

The Cornish Pasty Association, which is backing the event, hopes people locally and across the world will take part. It will be held on 3 March, the Saturday before St Piran’s Day. (Legend: St. Piran is the patron saint of tin miners and the national saint of Cornwall– and his flag is the white cross on a black background. Apparently he lit a fire on his black hearthstone, which was evidently a slab of tin-bearing ore. The heat caused smelting to take place and tin rose to the top in the form of a white cross – thus the image on the Cornish flag).

The Cornish pasty has been associated with tin miners in the county, and was a part of many people’s diets during the 18th Century. The Oxford English Dictionary suggests the pasty was first identified around 1300. Families in Cornwall have passed down the recipe for a Cornish pasty through the generations.

The Cornish Pasty Association, which had to come up with the “genuine” Cornish pasty recipe as part of its successful Protected Geographical Indication (PGI) application, said an authentic pasty should have a distinctive ‘D’ shape and be crimped on one side, never on top. I know the feeling.

It said the filling should be “chunky, made up of uncooked mince or chunks of beef with swede, potato and onion and a light seasoning” before being slow-baked. Variations on the pasty taken around the world by expatriates can be found from Australia to California and Mexico.

Sounds like a great excuse for a pasty party.

Have a good week.

Justin Urquhart Stewart

Director

Seven Investment Management Limited