Heartwood Wealth Management has revealed the pre-emptive measures it took to protect clients from recent market volatility.
The company says it moved out of most corporate bonds last year due to insufficient risk premium and claims it has been reducing its commercial property holdings since autumn 2006, when the cost of borrowing overtook rental yields.
It also says it reduced its exposure to the leveraged private equity sector and moved some equity funds from smaller or mid-sized companies to funds focussing on larger, more conservative, enterprises.
Heartwood Wealth Management chief executive David Lough says the company suggested in June that the move back to more expensive borrowing may happen smoothly.
But he says: “It has since happened and not smoothly. There have been casualties and they are not all yet visible along the roadside. It has spread to all financial markets, as banks and others have lost confidence in each others’ creditworthiness.
“It is certain there will be an impact on world growth and company profits – it must flow from an increased cost of borrowing and banks’ reduced pool of capital to lend after absorbing losses.”
Lough says the economic impact will be moderate but will likely be more evident in countries such as the US and UK where people have borrowed extensively.