You know we're in a severe bear market when the market falls sharply on confirmation of the blindingly obvious. The news of a fall in GDP led to a sharp fall in the markets this month. It's hard to understand why this news would come as a surprise to even a blind baboon after all the indications of falling retail sales, plummeting commodity prices and corporate profit warnings. The particularly sharp drop in Asia-Pacific and Emerging Markets reflects a panic stricken flight from perceived risk.Yet even the savage falls in equity markets pale into insignificance beside the turmoil in hedge funds, credit markets and structured products. So have we been sitting paralysed, gobsmacked and bemused while markets crash, you may well ask. With markets moving by as much as 8% a day it was certainly tempting, but the answer is no. Firstly, we implemented an updated asset allocation stance from Ken Forman & Associates.This included a reduction in the exposure to property and an increase in the allocation to emerging markets. In addition, an allocation to Japan was introduced through the Societe Generale Japan Core Alpha Fund. Elsewhere, we have been on a search for income, which we believe will form a vital component of returns until the bear retreats. So we have begun to re-introduce equity income funds into the UK portfolio and have started with the Standard Life UK Equity High Income Fund.Equity markets are currently enjoying a very welcome rally. The various bank refinancing packages put in place around the world seem to be working at last, with Libor rates returning to more normal levels. But the time to really break into the cash under the mattress is when markets show more resilience by shrugging off bad news.
