The asset management firm says the ECB’s bond-buying programme, coupled with a more positive outlook for Chinese growth and successful negotiations around the US fiscal cliff, has made it far more comfortable with equities and higher-yielding bonds.
"As we head into 2013, we recognise that many of the external risk factors which have been plaguing markets in recent years are now slowly being addressed," said Percival Stanion (pictured), head of multi-asset at Barings.
"One of the most obvious is the eurozone debt crisis. In this regard, we have been encouraged by the recent policy moves of the ECB and although the economic data continues to look very poor, the Bank’s bond-buying programme has removed an immediate contagion threat."
Stanion is also optimistic about the trajectory of growth in China – one of the major uncertainties in 2012.
"We believe growth in China now appears likely to re-accelerate back towards 8 per cent," he said.
"We would be cautious about expecting anything greater than this as it is very likely that the trend growth rate will ease over the next decade as the authorities attempt to rebalance the economy away from exports and towards domestic consumption."
"However, China will still be growing considerably faster than most other countries and will therefore account for an increasing proportion of global growth."
Asian markets finished the year strongly – helped by the improving economic picture in China – and Barings expects emerging equities to perform better in 2013.
As a result of the apparent stabilisation of the global economy, the flagship Baring Dynamic Asset Allocation fund increased its risk exposure at the end of 2012 and the beginning of this year.
At the end of the third quarter, the £6bn portfolio had 30 per cent in equities, which has now risen to 43 per cent. The fund is institutionally focused, but has a retail-equivalent – Baring Multi Asset, which is co-managed by Stanion and Andrew Cole.
According to FE Analytics, Baring Multi Asset is up 41.83 per cent since its launch in March 2009, performing broadly in line with its IMA Mixed Investment 20-60% Shares sector average, albeit with less volatility.
Performance of fund vs sector since launch
Source: FE Analytics
Barings Multi Asset is predominantly a fund of funds, but holds individual equities and bonds. The £281m portfolio requires a minimum investment of £2,000 and has a total expense ratio (TER) of 1.87 per cent.
Percival says his favourite area of the fixed interest market is currently high yield, which he believes is benefitting from healthy balance sheets and low default rates.
Although he sees little upside in gilts, he continues to hold them as an insurance policy against a market correction.
"While macroeconomic visibility has improved in recent months, we are mindful that the outlook for the global economy remains somewhat precarious and we therefore maintain some exposure to lower risk assets such as cash and government bonds, with the latter accounting for 12.8 per cent of the [Dynamic Asset Allocation] portfolio as at the end of 2012," he added.