Implementation for Conservative Investors

We review our asset allocation 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 conservative investors to size their investments. Each individual is different so, deviations are bound to occur.

alloc for conservative

Bond Funds for: Conservative Investors 

Equities for: Conservative 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.

Conservative Investors should not use any leverage.

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

leverage effect.png