Redrawing the map
INVESTMENT STRATEGIES GEOGRAPHICAL ALLOCATION
A geographical approach to asset allocation may sound like the most
obvious way to segregate equities but, given the globalisation of
markets, should investing by regions or countries still constitute the
first step to building portfolios?
BY GARY SHEPHERD
We have arguably never
had it so good in terms of
the vast choice of themes
and asset classes to invest
in, which may actually go
some way to explain why
many investors today sit
paralysed by indecision.
Analysis paralysis, you
might say.
Is it worth keeping such
vast amounts of money in
corporate bonds, or should
you now diversify into strategic
fixed interest funds? If
you are convinced by commodities,
should you opt
for energy or agriculture?
Should that be through
ETFs or related equities?
l The magical 5%
Similarly, those investors
still looking for an entry
point into equities – having
missed the rally since March
– must also decide on the
right regions or countries
in which to park their cash.
Risk/reward measures obviously
play a big part in this
process, but can we be sure
that a greater appetite for
exposure to emerging and
the newly accessible frontier
markets has not blurred
the traditional approach to
regional or country-specific
allocation?
Asset allocation should
be an informed but bespoke
decision, based on client
attitudes to risk and a professional’s
own views on
ever-evolving economic
and market conditions.
Despite this, the industry
often brandishes a seemingly
magical 5% figure as
the traditional norm for
emerging market exposure,
which most would now
argue is outmoded given
the changing tides of global
growth away from indebted
western countries towards
Asia and Latin America.
l Beneath the surface
As discussed in last month’s
Equities article on the UK
(pages 49-50), allocation
to a UK fund is unlikely
to mean a strict allocation
to UK-focused companies,
with fund managers frantically
tilting their portfolios
towards overseas earners.
The same can be said for
funds offering exposure to
other western markets.
“I think the theory
that you invest so much
in Europe, and so much
in Japan and the US, has
changed in many areas,”
says Alan Stokes, fund
manager and director at
Brooks Macdonald Asset
Management.
In terms of asset
allocation, I think the
theory that you invest
so much in Europe,
so much in Japan
and so much into the
US, has changed in
many areas
“
”
Alan Stokes, fund manager and
director, Brooks Macdonald
Asset Management
JANUARY 2010 [www.portfolio-adviser.com] PORTFOLIO ADVISER
17
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