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In the last few years, risky choices have certainly paid off. But the recent market volatility — the Vix is up 10% over the past 30 days — is a wake-up call that sometimes risk-taking “may not be so well rewarded”, according to Christine Benz. Following the news of geopolitical turmoil, not-cheap equity valuations, and the prospect of rising interests, it’s time to start looking at more defensive funds.
People are inclined to shy away from the “more risk-conscious holdings” today, because they have lagged relative to the riskier options during this “extended equity-market rally.” But if there will be continued market volatility, you’ll want to have some options that can “hold their ground.”
Benz writes that they “filtered [their] funds with Morningstar Analyst Ratings of Bronze of higher, then added some performance-based screens, including subpar five-year returns but below-average 2008 losses and good risk ratings” in order to compile “an attractive mix of defensive-minded equity, balanced, and bond funds.”
Some of the best they found include:
- American Century Equity Income (TWEIX) – Analyst Rating: Silver | Five-Year Percentile Rank: 94 | 2008 Percentile Rank: 1
- FPA New Income(FPNIX) – Analyst Rating: Silver | Five-Year Percentile Rank: 90 | 2008 Percentile Rank: 14
- Vanguard LifeStrategy Income (VASIX) – Analyst Rating: Gold | Five-Year Percentile Rank: 82 | 2008 Percentile Rank: 11
“The municipal market has been on a tear this year. And I’ll be the first to admit — we didn’t necessarily expect it,” writes BlackRock’s Peter Hayes. He adds that “overall, municipal bonds continue to be a favourable fixed income option” at BlackRock. But instead of trying to “reach for more,” right now it’s important to focus on protecting these recent gains. Hayes suggests the following three ways to do so:
1) The uncertainty of the market “demands a high level of adaptability.” So if you have a flexible strategy, you can add a lot of diversification to your municipal allocation in this situation.
2) “The middle portion of the municipal yield curve (short and intermediate maturities) is looking relatively pricey at this juncture. For that reason, we suggest a barbell approach that favours maturities below two years on one end (for trading flexibility) and above 15 years on the other for some potential yield pick-up. While short-term and intermediate munis are looking expensive, we think longer maturities continue to appear attractive versus Treasuries and, we believe, represent absolute and relative value.”
3) Let the professionals deal with credit research because they have a better understanding of issuers’ willingness to pay back, and also are better at determining new precedents.
Emerging Market Equities Are Looking Up, But Keep An Eye Out For Volatility (AllianceBernstein)
Things are finally starting to look up for emerging markets, but it’s still important to consider several factors. AllianceBernstein’s Morgan Harting writes that it’s important to not be “paralysed” by the ongoing geopolitical crises. Even after all of the developments this year, “EM equities have delivered a respectable 15% return.”
The actual thing to worry about with EM equities is volatility — and allocations will need to overcompensate for this. “In our view,” Harting writes, “that means finding ways to generate meaningfully higher returns than the index and/or employing strategies to reduce volatility.”
Harting adds that they “expect markets such as Vietnam, Nigeria, Colombia and Qatar to become more significant constituents in global portfolios.”
Remember These Important Strategies When Dealing With Clients (Financial Planning)
Sometimes there’s a disconnect between the advisor and the client. But here are several things to keep in mind in order to maximise your success, and keep winning over new clients, according to Ann Marsh.
Firstly, be precise and skip the fluff. Clients want to know what’s actually going on. They don’t need or want to hear the elaborate, unnecessary details; but they also don’t need the extremely vague sketches. Just tell them upfront what’s what. And make sure you don’t speak as though you think you are superior to them — that just won’t end well.
Focus on your clients; don’t just talka about your firm. They’re not interested in working for your company so you don’t need to advertise it. Instead, talk about what you can do for your client, and ask them what they need. After all, they will only be interested if you can offer them something.
People across industries are worried that soon robots will take over their positions. And the advent of robo-advisors has gotten some financial advisors pretty nervous. However, as an advisor you deal with people and their emotions — and there are some things that robo-advisors can’t do.
You can help clients see the bigger picture, and help them make the right decisions when they aren’t thinking clearly. Sometimes people get emotionally attached to an event — for example, the 2008 drop or the death of a spouse, according to Liz Skinner. In a situation like this, you can suggest “gradual changes in a portfolio” so that your client can overcome these mental biases.
Additionally, robo-advisors might know the technical answer to why a certain solution works, but your client may not understand it. As an advisor, you can help connect the idea to something relevant in your client’s life — so that they have a better understanding of what they are doing.
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