With talk of the end of the global bull run preoccupying the City and beyond, it’s only a matter of time before this turns into a self-fulfilling prophecy and we hit a slump.
We’ve written plenty about the trend for de-risking in recent weeks, but achieving this yet still ensuring minimum disruption to portfolios requires great skill.
While cutting back equity exposure seems a sensible move, would a shift from overvalued Western markets to more attractively valued emerging markets make sense?
"Equities are equities"
Perhaps so, though as Mouhammed Choukeir, chief investment officer at Kleinwort Benson, says: “However you are split between markets, ultimately equities are equities and in times of stress all markets go down to varying degrees.
“You may be able to squeeze out more returns by moving between regions, but with equities it really comes down to whether you’re in or you’re not.”
Choukeir has been cutting equities in model portfolios in recent months (though has maintained emerging market exposure) and he has been buying into floating rate bonds, government bonds and holding cash.
Certain alternatives have been gathering momentum as a route to diversification, and protection against an equity downturn.
James Burns, head of multi-manager at Smith & Williamson, holds the likes of HarbourVest Global Private, Fair Oaks Income Fund (collateralised loan obligations) and Doric Nimrod (aircraft leasing). However, he stresses that value in the investment trust space today is less obvious, with many vehicles across various classes trading at a premium.
For Choukeir however, the less complicated the asset classes the better: “A characteristic of financial services is that it has been very entrepreneurial, but in many ways it is a victim of its own innovation.
“Everything I own I know exactly how it will behave in different scenarios.”
