Some common themes in the portfolios we manage for clients have been:
- Component Of Cash and Bond Funds – In volatile times these asset classes are seen as a safe haven and well supported as investors leave more volatile asset classes. Investors should have a component of cash and bonds in their portfolio with the allocation being dictated by how long your investment horizon is and your immediate need for an income stream.
- International Equities And Currency – The majority of our clients' international exposure is unhedged to the currency. That means they have been able to benefit from our depreciating currency. When money is invested overseas and our dollar loses value you pick up gains when you convert your investment back into Australian Dollars. The Australian Dollar typically weakens in volatile markets and the current volatility has been no expectation. This has meant unhedged international equities have fallen less than half of our local share market.
- Absolute Return Funds – These funds play an important part of any portfolio in times of volatility. They have no constraints and also have the ability to make money in falling markets with their ability to what we call going “short”. Going short simply means a profit can be made on a falling stock.
- Active Management – Fund Managers usually fall into two camps index or active. The current environment now suits portfolios with an active tilt allowing your portfolios to have a strong conviction to quality companies with strong balance sheets, maintainable cashflows in industries less affected by current headwinds.
Its also worthy of note as to where we haven’t deployed funds and why:-
- Mortgage Trust and Unlisted Property Trust – In good times the income paid from these is very appealing but experience tells us that these become illiquid in times of stress with funds not being able to sell assets to meet investor redemption requests resulting in the funds being frozen.
- High Yield Securities – Again these provide attractive income prospects in good times but in times of distress can be as volatile as equities as sellers seek to exit contracts with corporates where they have concern around their ability to repay.
In conclusion a diversified portfolio that is well managed will ensure the volatility that you personally experience is greatly reduced in these turbulent times.
If you would like help reviewing your investment strategy you can contact John Manuel at Prosperity on 02 49077222 or firstname.lastname@example.org.