Which asset classes and geographies are you looking at?
Our clients have the benefit of looking across asset classes for their investments and we always insist on the importance of diversification. This being said, in portfolios that we manage for our clients we are emphasising equities, particularly in Europe and the United States, and hedge funds that can take advantage of declining correlations within stock markets, capitalise on an increase in corporate events such as mergers and acquisitions, or find opportunities to arbitrate discrepancies within fixed income markets. In addition to this, we continue to work hard on finding unique opportunities in the private investments space.
What is your outlook for the month/year ahead?
We expect global markets to slow down from their breakneck pace, and for 2014 to be a year of more modest appreciation in equity and credit markets. After the surge since the spring of 2009, we anticipate a gradual return to high single-digit gains and double-digit volatility for global equity markets. In fixed income, despite US 10-year Treasury yields rising about 125 basis points last year, interest rates remain historically low across developed markets. Consequently, this year looks like another year in which cash and traditional fixed income don’t add much to portfolios. We advocate a 2-to-2.5-year duration target across portfolios, favoring exposure to credit as well as benchmark-agnostic total return strategies that can tactically navigate a volatile market.
What are the main risks (upside or downside) to that outlook?
On the upside, a long-awaited return to synchronised global growth combined with still-accommodative monetary policy around the world could push more investors to step off the sidelines and into rising equity markets. Note that price-to-earnings multiples are close to historical averages, suggesting there may be room for overshoot. On the downside, the low-volatility environment that we have enjoyed may lead to complacency among market participants. This could subsequently result in more pronounced reactions to unexpected bad news. An early example of this could be the sell-off that global markets experienced in January, sparked primarily by concerns about disappointing economic data from certain emerging markets.
What was the best investment your bank was involved with?
We are constantly looking for unique opportunities for our clients to take advantage of the evolving market environment. After 2008, we identified a number of dislocated markets where our clients were paid a significant premium to be providers of liquidity, allowing for equity-like returns with far lower risk. More recently, our clients have also enjoyed opportunities to participate in privately owned companies in the technology, real estate and reinsurance sectors, among others.
What was the worst?
While we strive to identify innovative ideas for the opportunistic portion of our clients’ investments, they can’t always produce the results we would like. The key is to reevaluate each investment regularly and reaffirm whether it has a useful role to play in the broader portfolio. Our tailor-made approach allows us to do this with our clients in a disciplined and rigorous fashion, while thoughtfully looking to incorporate new ideas in their portfolios.
selgazzar@thenational.ae
