The current equity bull market has just celebrated its sixth birthday, and investors have experienced some extraordinary gains. The length of this bull run is above average for the asset class, but pales into insignificance when compared to the 30-year-plus period that bonds have enjoyed.
There are strong arguments that both markets may struggle for returns in the short to medium term.But with bank deposits offering so little, what should investors do?
The answer lies in time horizon and diversification. Investors should ensure that they have the appropriate time horizon to allow them to see through the peaks and troughs that investment markets will deliver. Moreover, a diversified portfolio will help reduce this volatility of returns. A balanced portfolio that gives global multi-currency exposure to both equities and bonds should give superior risk-adjusted returns to a single asset class, single geography and single currency portfolio.
Global bond investing allows for exposure away from home market liquidity issues into Europe and beyond. A blend of sovereign, investment and non-investment-grade credit largely in developed, but with some emerging market exposure, should be embraced.
It is widely expected that Asia and Latin America will grow faster in the years ahead
The currency exposure that comes with this should be carefully managed to ensure that the underlying investors base currency is the dominant one, but also that opportunities that exist elsewhere are exploited.
For example, the QE programme established earlier this year is likely to put pressure on the euro in the coming years relative to other regions that are not printing, and where the outlook for currency is more encouraging.
Similarly, equities inter-national investment comes with a raft of benefits. The developed markets of North America, Japan and the UK offer a broader exposure to industries such as IT and mining that are less well represented in Europe. It is also widely expected that the so-called emerging economies of Asia and Latin America will grow at a significantly faster rate in the years ahead, and in the longer term there will be an opportunity cost of ignoring them.
John Bellamy is Waverton Investment Management, Fund Manager for the Vilhena Global Balanced Multi-Manger Fund.
The opinions expressed herein should not be interpreted as investment advice. Past performance is not a guarantee to future performance. The value of the investment can go down as well as up and any initial charges may lower the amount invested and the amount received upon redemption. Investments should be based on the full details of the Prospectus, Offering Supplement and the KIID which may be obtained from Valletta Fund Management Limited (“VFM”), Bank of Valletta plc branches/investment centres and other licensed financial intermediaries. VFM is licensed to provide investment services in Malta by the MFSA. The Vilhena Funds SICAV plc is licensed by the MFSA and qualifies as a UCITS. Issued by VFM, TG Complex, Suite 2, Level 3, Brewery Street, Mriehel BKR 3000, Malta. Tel: 21227311, Fax: 22755661, e-mail: infovfm@bov.com, website: www.vfm.com.mt. Source: Waverton Investment Management.