Where to go when the party’s over?
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It comes on the back of nearly two months of strong gains, with some commentators pointing to green shoots and others to a market rally that they believe is destined to fizzle out. The question that is befuddling investors with a balanced outlook is where to go now for decent long-term returns?
Informed Choice IFA Martin Bamford looks to play it safe with balanced and cautious minded clients and heads for the UK all companies sector.
He says: “Nobody knows in the short-term whether this is a bear market or bull market rally and whether it is sustainable.
“The investment philosophy of the firm is to keep things fairly simple and traditional and not to go for things that are too exotic. For somebody of a balanced or cautious portfolio, there would be a real focus on the UK over and above any other investment market from a equity perspective simply because it takes out things like currency and political risk.
“We have never really stopped recommending equities but within a diversified portfolio, they play a role and depending on the term for the investment objective and how much risk the client’s prepared to take they could play a role of anything from 30 per cent up to 80 per cent.”
Bamford says emerging markets play a role in some of the firm’s client portfolios but never backs a single investment market or asset class 100 per cent.
In the fixed income space, he has concerns about the high yield end of the junk bond sector within the UK as there’s less of a history compared to the US.
He adds: “I also have some concerns about valuation methods of individual funds with the pricing of assets and that could feed through to some of the distorted valuations and performance figures.”
Another problem, he says, is forced sales from funds as more credit-rated bonds face downgrades to junk status.
He says: “Investors have to understand the implications of this for performance and holdings in the funds. The message is not as simple as ‘I’m earning 0.5 per cent in cash and I can get 5-7 per cent in corporate bonds’ - there’s a whole raft of underlying factors which need looking at.”
Bestinvest senior investment adviser Adrian Lowcock is wary of advising clients to stick to the UK as he believes they’re likely to miss out on diversification benefits and potential returns available overseas.
He says: “You won’t get full diversification by investing in the UK but you will get exposure to overseas income predominantly the US.
Lowcock says areas such as the US and Asia look likely to benefit most from the recovery and depending on the level of risk involved, an element of exposure in emerging markets is attractive.
“By sticking to the UK, you’re not fully diversified because you’re not going to get exposure to a lot of Asian markets and certain industries for example manufacturing and other technology companies which are more available in America.”
Where are you putting your client’s cash for the long-term? Are you convinced by the emerging markets story? Let me know your thoughts by clicking on the comments box below.
