Globalasset Allocation: crude calculations
Theglobal asset allocation is a very essential aspect in the world ofbusiness. It can be termed as an investment strategy that aims atexploiting the short-term miss-pricing among the world set of assets.The entire strategy tends to focus on the market`s general movementsrather than on the individual securities’ performance. Thestrategy, however, calls for the investor to carry out an analysis ofthe market trend of an asset that he or she intends to invest incomprehensively. The analysis aims at understanding how the asset’svalue varies and the conditions responsible for its variation(Aubrey,2013). The document below analyzes oil as an asset.
InMay 2011 when the oil prices was about 125 USD per barrel is not theright time to carry out an allocation to oil. This is because, inaccordance to the analysis on the graph for five years since 2009,this was the highest ever pricing of oil. From the graph, the pricingtrend is inconsistent. It usually rises and falls periodically(Aubrey,2013).For example, in July of the year 2010, oil was trading atapproximately 125USD while the following month the oil price droppedto approximately 118USD. The speculation is that being such high allthe stakeholders are doing all they can to reduce the price for oil.This clearly shows that doing an allocation to oil will at such apoint easily lead to a loss. This is because a slight reduction inprice means that the oil will eventually be sold at a loss.
Oilis not a perfect asset to a pension fund portfolio. It is true thatthe business is all about risk taking. However, the investor shouldonly make a considerable risk. A pension portfolio is like a longterm investment hence needs a stable asset. Oil is always varying.This means that the investor might wait for a very long periodwaiting for the right time to redeem his or her investment which caneasily take him a number of years. The unfortunate part of it is thathe or she might eventually redeem it at a loss. Secondly, with therecent inventions of alternate sources of energy such sand oil, thecost for fuel might go on declining. Assets such as agricultural landor precious stones, on the other hand, have intact value which canonly appreciate, but can never depreciate. This indicates that theinvestor who has invested in such assets as his or her pension fundportfolio is on a better part than the one in the oil sector (Aubrey,2013).
Oilis an excellent hedge for inflation. Oil thrives excellently whenthere is inflation. A study indicates that oil’s correlation hasapproximately 0.4 over the last three decades. Most recently thecorrelation reached 0.7 which is a remarkable turnout. These resultsindicate that the oil has a remarkable hedge against inflation. Oiltends to gain value with inflation. Whenever there is inflation inany given economy the cost of oil tends to increase. Research showsthat in the year 2005, the cost oil rose by 75%. This was solely as aresult of inflation (Aubrey,2013).
Itis clear from the discussion that global asset allocation calls for agreat and comprehensive analysis. In business, profit is the chiefgoal of every investor. No single investor can invest when he or sheis sure that eventually he or she will incur a loss. It is true thatthe business is all about risk but the investor should always make acalculated move that will assure him or her profit eventually. Athorough market analysis is, therefore, vital to ensure that oneinvests in promising assets.
Aubrey,T. (2013). Profitingfrom monetary policy: Investing through the business cycle.
Agraph oil pricing variation from the year 2000 to date
Agraph of oil pricing against inflation from 1946 to date