Investors should consider adopting a conservative tilt to their portfolios in times of global economic uncertainty, a Macquarie Private Wealth executive has said.
“The issue in Australia at the moment is that the market looks cheap but when you start looking at the different sectors, there are some sectors where earnings are more certain than others,” Macquarie Private Wealth Riccardo Briganti told a briefing yesterday.
“Given the problems in the world, or the sentiment that we’re facing, we think this means that investors still need to have a conservative tilt to their portfolio.”
In the retail space at present, a key factor is knowing the client and knowing the client’s needs, he said.
Briganti said consideration should be given to taking a back-to-basic approach.
“I think the lessons are that you’ve got to go back to fundamentals. There are fundamentals that are sometimes forgotten. Risk and return trade-off is one of them and diversification is the other one,” he said.
The resources sector is a good example of risks and returns, he said.
“If we [Macquarie] are right about China and we get a bounce in the resource stocks, you’re going to do extremely well. Unfortunately, there is quite a big risk in there. So if you’re prepared for that risk return trade-off, you’re not going to be concerned when [the bounce] doesn’t come about because, hopefully, you haven’t put all of your investment dollars in there.”
If investors are not prepared to take on risk, they should be focusing on consumer staple stocks or the health-care sector, he said.
Briganti said diversification was fundamental on both a sector level and in terms of asset classes.
“There was a period from 2002 to 2007, where there was sort of this view where Australian investors didn’t need to diversify because they were getting all that they needed from the Australian share market,” he said.
However, the last couple of years has shown investors why they need to diversify.
“Internationally we’ve had a terrible year this year; the Australian market is down 10 per cent, the world is down five,” he said.
“The year before, I think the Australian market was flat and international was up 5 [per cent]. So there are times when there are very specific issues facing economies whether it’s Europe, Australia or Japan, and that’s why diversification is useful.
“You’re not going to have strong returns forever.”
