This last part requires firm political commitment, and thus time. Since the 2008 crisis central banks have expanded their balance sheets by $11 trillion which means that they are now so heavily invested in the success of that policy, we believe they have little option other than to continue on an accommodative path and buy time for the political process to come through. We are mindful of risks, however, as overall growth conditions remain tepid and the economic cycle is maturing.
We are conscious that although markets have rallied significantly, the support provided by the low interest rate environment remains. Therefore, our Investment Committee agreed to leave our asset allocation largely unchanged. We prefer equities to bonds on valuation grounds, and remain underweight the UK and cautious in Europe, neutral in Japan and more positive on the US and the US Dollar. We believe that the answer to increased uncertainty is to maintain diversified portfolios, manage risk, and find managers who can actively identify mispriced assets.
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