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18-05-2014, 09:58 AM
Equities best bet as rates rise: Banker
Private wealth manager suggests shares comprise bulk of investors' portfolios
Published on May 18, 2014 1:16 AM
Focus on shares: "It won't be an easy road to get the returns you want, but equities are the focus - other plays are for diversification or for risk management." - MR BHASKAR LAXMINARAYAN, Asia chief investment officer at Pictet Wealth Management
By Tee Zhuo
Shares should be firmly in the sights of investors as the era of low interest rates draws to a close, according to Pictet Wealth Management.
The subsidiary of Swiss private bank Pictet told a briefing in Singapore that it has advised clients to weight their portfolios towards equities this year.
It suggests that shares comprise about 54 per cent of investments, up significantly from 35 per cent in 2011, with bonds accounting for 30 per cent this year, compared with 33 per cent allocated three years ago.
Alternative assets occupy the bulk of the remainder of 14 per cent, with cash - at 2 per cent - the lowest amount suggested in five years.
Mr Bhaskar Laxminarayan, Asia chief investment officer at Pictet Wealth Management, said the composition anticipates the end of quantitative easing, or the low interest rate policy in the United States.
"There is a revival in US growth, but that naturally means there has to be an exit to the zero interest rate policy... we need to start thinking about how to position our portfolio to take advantage of this," he said on May 8.
US Federal Reserve chief Janet Yellen said last Wednesday that "there is no specific timeline" for raising rates from the current zero to 0.25 per cent range.
In general, the interest rate typically shares an inverse relationship with the value of bonds as an investment. Bonds become less popular when interest rates go up as better pickings in other asset classes emerge.
While Mr Laxminarayan noted that there is "some merit" in having bonds, there is still "real risk" in the short term due to the eventual rise in US interest rates, which he predicted could go up to 3 per cent or so over the next few quarters.
"The only reason to have bonds in the portfolio is for two things: for diversification and protection," he added.
Pictet Wealth Management believes the global economic recovery is largely US-led, despite the slow growth there in first-quarter gross domestic product at 0.1 per cent, far below economists' expectations of 1.1 per cent.
"The US GDP numbers were lower than expected, but this is not surprising given the severe winter conditions. If you consider the government closure for two weeks of the last quarter of 2013, the sustained recovery in the US economy is very creditable," said Mr Laxminarayan.
To take advantage of this, Pictet recommends stocks that are "high quality cyclicals" in developed markets, such as the US, as opposed to emerging markets. Cyclical equities are stocks that follow the economy's ups and downs closely.
The bank also stuck to its earlier call for investors to get out of gold. In 2011, the yellow metal made up 7 per cent of the suggested portfolio, but this year's recommendation saw no trace of it.
Mr Laxminarayan said "there is no logic" in owning gold at this time as part of a portfolio.
"Gold is a hedge in high inflation conditions, but not in normal inflation conditions where other assets are working and have greater earnings potential," he added.
Consultancy Metals Focus reported last Wednesday that gold prices could sink to a four-year low at US$1,100 an ounce this year amid the recovering US economy.
Mr Anuj Khanna, South Asia chief executive officer at Pictet Wealth Management, also pointed out the allocation given to alternative assets, which has remained largely unchanged at 14 per cent, from 15 per cent in 2011.
"This is an asset class that is giving better and better returns as time goes by and more investors are coming back to it."
He noted that real estate like commercial buildings as a private equity investment is getting popular.
But Mr Laxminarayan emphasised that "we are in an equity world".
"It won't be an easy road to get the returns you want, but equities are the focus - other plays are for diversification or for risk management."
teezhuo@sph.com.sg
Private wealth manager suggests shares comprise bulk of investors' portfolios
Published on May 18, 2014 1:16 AM
Focus on shares: "It won't be an easy road to get the returns you want, but equities are the focus - other plays are for diversification or for risk management." - MR BHASKAR LAXMINARAYAN, Asia chief investment officer at Pictet Wealth Management
By Tee Zhuo
Shares should be firmly in the sights of investors as the era of low interest rates draws to a close, according to Pictet Wealth Management.
The subsidiary of Swiss private bank Pictet told a briefing in Singapore that it has advised clients to weight their portfolios towards equities this year.
It suggests that shares comprise about 54 per cent of investments, up significantly from 35 per cent in 2011, with bonds accounting for 30 per cent this year, compared with 33 per cent allocated three years ago.
Alternative assets occupy the bulk of the remainder of 14 per cent, with cash - at 2 per cent - the lowest amount suggested in five years.
Mr Bhaskar Laxminarayan, Asia chief investment officer at Pictet Wealth Management, said the composition anticipates the end of quantitative easing, or the low interest rate policy in the United States.
"There is a revival in US growth, but that naturally means there has to be an exit to the zero interest rate policy... we need to start thinking about how to position our portfolio to take advantage of this," he said on May 8.
US Federal Reserve chief Janet Yellen said last Wednesday that "there is no specific timeline" for raising rates from the current zero to 0.25 per cent range.
In general, the interest rate typically shares an inverse relationship with the value of bonds as an investment. Bonds become less popular when interest rates go up as better pickings in other asset classes emerge.
While Mr Laxminarayan noted that there is "some merit" in having bonds, there is still "real risk" in the short term due to the eventual rise in US interest rates, which he predicted could go up to 3 per cent or so over the next few quarters.
"The only reason to have bonds in the portfolio is for two things: for diversification and protection," he added.
Pictet Wealth Management believes the global economic recovery is largely US-led, despite the slow growth there in first-quarter gross domestic product at 0.1 per cent, far below economists' expectations of 1.1 per cent.
"The US GDP numbers were lower than expected, but this is not surprising given the severe winter conditions. If you consider the government closure for two weeks of the last quarter of 2013, the sustained recovery in the US economy is very creditable," said Mr Laxminarayan.
To take advantage of this, Pictet recommends stocks that are "high quality cyclicals" in developed markets, such as the US, as opposed to emerging markets. Cyclical equities are stocks that follow the economy's ups and downs closely.
The bank also stuck to its earlier call for investors to get out of gold. In 2011, the yellow metal made up 7 per cent of the suggested portfolio, but this year's recommendation saw no trace of it.
Mr Laxminarayan said "there is no logic" in owning gold at this time as part of a portfolio.
"Gold is a hedge in high inflation conditions, but not in normal inflation conditions where other assets are working and have greater earnings potential," he added.
Consultancy Metals Focus reported last Wednesday that gold prices could sink to a four-year low at US$1,100 an ounce this year amid the recovering US economy.
Mr Anuj Khanna, South Asia chief executive officer at Pictet Wealth Management, also pointed out the allocation given to alternative assets, which has remained largely unchanged at 14 per cent, from 15 per cent in 2011.
"This is an asset class that is giving better and better returns as time goes by and more investors are coming back to it."
He noted that real estate like commercial buildings as a private equity investment is getting popular.
But Mr Laxminarayan emphasised that "we are in an equity world".
"It won't be an easy road to get the returns you want, but equities are the focus - other plays are for diversification or for risk management."
teezhuo@sph.com.sg