Equities still a risk but don't rule them out

Despite the recent rally in global equity markets, stocks are still risky, but shouldn't be ruled out altogether when assessing your portfolio, according to investment manager GAM.

Friday, May 22nd 2009, 5:00AM

by Paul McBeth

Helen Ng, managing director and head of private clients and portfolio management in Asia Pacific, said "volatility is here to stay" and that investors should reduce their exposure to equity markets without ruling them out altogether.

She said investors should be highly selective and geographically diverse in their equity holdings.

Ng is travelling New Zealand on a roadshow with Tower Asset Management promoting the Tower GAM Global Gateway Fund and Tower GAM Multi-trading Fund.

"In the absolute return strategy we're managing equities carefully" with an exposure of 20-25%, Ng said. "But if we see good opportunities in the short-term with a technical approach, we will add risk."

Ng isn't convinced the recent rally in global equities will be sustained, with recent capital raisings in the UK artificially lifting share prices of companies with weak balance sheets as investors seek out bargains. The divorce of the share price from earnings concerns Ng, and she doesn't think this practice is "healthy".

The time to return to equities will be later this year, or in the first quarter of next year when companies are undergoing restructuring processes to exit their distressed phase. She said some investors have entered the market too early, and could see a decline in the value of their portfolio.

A consequence of the global economic slump has been the need for diversification of assets, and Ng recommends investors hold 30-40% in a wide spread of trading investments, and lift their bond exposure to 15%.

GAM approximates the total estimated assets for alternative assets held by hedge funds shrank to US$750 billion since October last year, and Ng said the funds are placing greater emphasis on macro-economic-driven assets over event-driven investments.

Paul is a staff writer for Good Returns based in Wellington.

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