IU.eu: What are your current market views, given that it's been a traumatic year for anyone invested in equities?

Aldous: We think that the full extent of the debt crisis is still to be seen. Many of the problems may be priced in, but the continuing ramifications of the structured debt market may hold things back for some months to come. It's not clear that the change of US President will have much of an effect. Bearing in mind that there has been a lot of good news in terms of fiscal and monetary stimulation, it's remarkable that markets haven't responded more. We're expecting massive dividend cuts throughout most of the Atlantic countries. One of our big themes is Pacific-centric investment, and while everything depends on the US starting to recover, Pacific markets are a geared play on that, as well as having their own, internal dynamism.

IU.eu: What are your views on commodities?

Aldous: Longer-term we are positive on commodities, but we have avoided them this year, in other words, since we launched, as we felt that their recent rise was overdone. When we decide to invest in them we'll use a diversified ETF or some of the physically-backed commodity products.

IU.eu: And property?

Aldous: We're still underweight across the board. When we do decide to go back in it will probably be initially into Far Eastern property ETFs. UK property, we think, will be in a very difficult situation for some time. In fact we're heavily underweight all UK assets.

IU.eu: What about the fixed income markets, where we've seen an incredible bull run in government bonds, but where corporate bonds have been struggling?

Aldous: One question I'd like to ask through you to the ETF product providers is why there isn't an ETF covering the short end of the gilt market, since it's been an incredible place to be! In longer duration bonds we feel that there may be a reappearance of inflation concerns, especially given the amount of debt governments have to issue. We think there will be great opportunities in inflation-linked bonds, especially in the US, though maybe not just yet - perhaps by the middle of next year? As far as corporate bonds are concerned, it's only because of some slight nervousness that we haven't become more heavily invested already. The great thing about corporate bond ETFs is that you can see what you've got, whereas if you employ an active corporate bond manager you run the risk of turning round and finding he's put the lot into Woolworths, for example. Plus a lot of the holdings in the corporate bond ETFs are issues from banks, many of which are now quasi-governmental organisations. So the yields are looking quite attractive, and it's very easy to put together a basket of ETFs covering US, UK and European corporate bonds.

IU.eu: Putting all these views together, how would you summarise things?

Aldous: Our big message is that China represents a large part of the world economy, yet you would have no weighting at all if you just bought the MSCI World Index. I would argue that you should want to have a decent exposure to China in your portfolio at the moment. Chinese equities are on a trailing P/E ratio of 9 and a yield of around 3%. The China FTSE Xinhua 25 ETF is one of the most amazing growth stocks there are. India also attracts us, among the emerging markets. There are 2.5 billion people in the two countries, combined, and we feel the underlying dynamism of these economies is still there, despite the stock market falls of the last year. So for a more aggressive portfolio we'd be quite happy holding 10% in Chinese stocks, for example.

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