Implementation for Balanced Investors

We review our asset allocations on a quarterly basis keeping in mind relative valuations, next 12-24 month fundamental outlook and market expectations vs positioning.

Brief Outlook:

We hold a bearish outlook to risk assets. Chinese economy is slowing down as it pivots to a consumption based economy and grapples with high levels of debt in the corporate sector which was built up during it’s fixed asset investment based expansion. Corporate profits in US are shrinking and productivity gains for companies are slowing. Europe and Japan are grappling with ageing populations and slowing demand for their exports from emerging markets. We have had a 7 year rally in equities and valuations in Equities are not cheap.

Below is a guideline for balanced investors to size their investments. Each individual is different so, deviations are bound to occur.

alloc for balanced

For Investors who don’t wish to do any tactical trades:

alloc for convesntional balanced

 

Bond Funds for: Balanced Investors

Equities for: Balanced Investors

Tactical Ideas for Balanced Investors:

USE OF LEVERAGE:

Leverage can enhance positive returns, while it can hurt more if investments post negative returns. Investors should take less leverage on more volatile investments like growth equities, convertible bonds and very long term bonds ; while safer investments like low volatility high dividend stocks and conventional bonds can be levered more as their price volatility is lower and hence risk of getting a margin call is lower.

Balanced Investors should not take more leverage than 1:1 [i.e. for every 1 dollar of equity, portfolio has 1 dollar of debt].

Below is an illustration of leverage effect on ROE (Return on Equity):

leverage effect.png