Investments  

How cautious should clients be with their portfolios?

  • To be able to explain the risks in the markets at the moment
  • To summarise the way in which investors can make allowances for different market trends
  • To be able to discuss how diversification matters in multi-asset portfolios
CPD
Approx.30min
 

What sort of portfolio allocation strategies need to be employed to help clients shore up their investments against a troubled economic backdrop?

Geraldine Sundstrom, portfolio manager at Pimco, said: "We have something pretty unprecedented, with the war, the pandemic which is still ongoing, inflation that we have not seen for the past 40 year or so, and policymakers seem to have their hands tied.

"We are in an environment that is completely different from everything we have seen before. We have fiscal withdrawal, some quantitative tightening and we have seen we need to be prudent and cautious in our portfolio allocation."

So are we fully risk on or risk off right now? Some advisers have been advocating a shift towards more defensive allocations within portfolios, while others are urging clients to stay calm and carry on.

Talking to FTAdviser, Sundstrom noted it is important to "keep some powder dry" ready to invest.

Sundstrom said: "We see a lot of vitality in the market right now, we see big moves in prices whether in fixed income or equities, and if you are already fully invested you cannot take advantage of that. 

"So it would be [advisable to be] higher cash to take advantage of that volatility."

Sundstrom said having to navigate these volatile waters meant having to balance making too many large, directional moves in the portfolio while also bringing in those sectors that see sustainable growth as well as quality companies with strong balance sheets.

The team have also been heading more into commodities and oil, given the inflation outlook globally.

She said: "Given the inflation picture and the shortages due to the war and lockdowns in the pandemic, we see that real assets are a better protector against inflation, when valuations of equities and fixed income are getting deeply disturbed by higher interest rates."

One way to approach this, she said, would be to invest in the currencies of those countries that are big exporters of these commodities, as well as to invest in some select mining companies, such as copper mining where there are good valuations and often high dividend yields.

To listen to the full video and complete the CPD questions below, click on the image above. 

By watching this 30-minute video, you should be able to:

  • Explain the risks in the markets at the moment.
  • Summarise the way in which investors can make allowances for different market trends.
  • Discuss with clients how diversification matters in multi-asset portfolios.

simoney.kyriakou@ft.com

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. How many key mega-trends has WisdomTree listed as likely to affect investors over the next decade or so?

  2. According to Dennehy, how much should investors be putting into cash and cash-like securities right now?

  3. What does Robert Wood of BofAML describe inflation as?

  4. According to Sundstrom of Pimco, a global slowdown is what?

  5. True or false, Sundstrom says: "It is important to keep some powder dry."

  6. According to Sundstrom, real assets are a better protector against what?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To be able to explain the risks in the markets at the moment
  • To summarise the way in which investors can make allowances for different market trends
  • To be able to discuss how diversification matters in multi-asset portfolios

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