Stay exposed to a range of assets: Experts

It’s a lot better to stay exposed to a range of asset classes, says Trevor Greetham, asset allocation director, Fidelity International Limited.

“Stay invested in a range of asset classes if you want to reduce risk at times when volatility picks up,” says London (U.K.)-based Greetham. He advises investors to balance their portfolio by buying some bonds, and ensuring some commodity exposure alongside equities. “Don’t try to reduce risk by timing the equity portfolio and don’t get out of the market entirely thinking you will know the right time to buy.”

Greetham confesses to timing the markets as part of tactical allocation, but says his deviations are fairly well controlled. “The bulk of the returns my investors receive are because they have five asset classes in their portfolio at all times.”

Investors can seriously jeopardize returns on their investment by making drastic changes in their portfolio in a volatile market, says Andrew Marchese, head of Canadian equities, director of research and portfolio manager, Fidelity Canadian Disciplined Equity Fund.

“To radically change one’s portfolio in an environment like this can lead to very deleterious results,” says Marchese. “Stay invested, don’t time the market.”

He strongly advocates holding a long-term perspective and picking equities and securities of companies based on their fundamental stories and valuations. “Market timing over long stretches of time proves to be value destruction strategy as opposed to a value adding strategy.”

The discussion often moved away from the Canadian landscape to explore investment opportunities elsewhere, particularly in Europe and emerging market economies.

Given its current economic climate and its potential for future growth, India offers attractive investment opportunities for those who want to look beyond battered markets of industrialized nations, says Parus Shah, portfolio manager, Fidelity Europe Fund.

“There are some very important changes that are happening (in India) on the infrastructure and transport side,” says Shah. “I think you are going to see faster growth in India in the next three years than you’ve seen in the past three years.”

In a stark contrast, the outlook on Europe was far from cheery. The continent’s biggest culprits, Greece and Spain, are thought to be a considerable drag on the already slowing global economy.

“Countries like Spain and Greece, who are in the fixed exchange rate regime of the euro, are more likely to default if the growth slows down because they don’t have the option of doing what they have done in previous years,” says Greetham, referring to currency devaluation. “They can’t print their own money. And as a result the weaker growth becomes globally, the more likely these governments will get in trouble.”

Also discussed by the panel of experts were the potential implications of recent efforts by the Chinese government to curb inflation, especially in the residential property market.

“We’re all waiting to see the Chinese ease off,” says Greetham. “That would be a great signal to start really accumulating equities and commodities again. I’m fairly confident that inflation will fall in the next six months and by the end of the year we’ll get more stimulus from China.”

However, historical trends indicate Chinese policies tend to be pliable. Greetham agrees. “The Chinese will probably ease their policy if growth slows too much.”

Part of the reason behind this fickleness is said to be the fact that in China policy changes are followed by an almost immediate reaction in the economy due to a very short lead time between the two. The international financial community is watching very closely.

(07/09/2010)