Stewart Siegel: Not sure this rally can really last the distance

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EQUITY funds showed positive returns in January, but I remain cautious about whether the rally is supported by economic fundamentals.

The UK may see a period of low growth in 2013 and this may weigh on any buoyant equity market activity.

I still have some concerns about the US – there are still issues to be resolved. The “political will” can usually be found, but it has previously come after a degree of conflict and at the 11th hour, both potential negatives.

Despite some strong equity market performance in 2012, I remain nervous about the eurozone, especially with German growth slowing Sterling weakened against the euro and the dollar in January, a situation which may have an impact on the price of sterling-denominated bonds. If the equities rally continues, there may be more revaluation of the fixed-interest market as investors reconsider the benefit of equities. I will monitor the fixed-interest exposure in the portfolio closely.

Other asset classes continue to provide diversification to the portfolio. Though this may act as a brake on returns when equity markets rally, it helps to smooth the return profile in general. I remain confident that my balanced approach will continue to achieve the objectives outlined by the Flemings: a long-term portfolio with a moderate level of risk.

The portfolio continues to perform well given the volatility in markets and, at the time of writing, has delivered more than 4 per cent since inception.

• Stewart Siegel is a director at Principal & Prosper