Faced with an investment environment increasingly driven by politics and a longer-term trend towards all things digital, traditional asset allocation has become a relic of the past and greater patience is needed to ride out volatility. How does one face these challenges? I follow an investment approach that focuses on five pillars.
Macroeconomic and investment environment analysis
What are the major trends that will shape capital markets in the coming years, and how will those trends affect asset returns in the context of the chosen investment horizon? This is the first question I ask myself before embarking on the asset allocation journey. The aim is to understand the direction ‘‘gravity’’ is pulling asset prices: investor portfolios should include assets that would profit from secular tailwinds. Inflation, growth and interest rate expectations, as well as technological developments and geopolitical factors are all relevant topics.
Strategic asset allocation
A strategic asset allocation is an investor’s benchmark allocation. It reflects their risk appetite, preferred investment horizon and major secular trends. The SAA should be tailored to match an investor’s financial goals and ability to withstand the expected investment environment. What is crucial to understand is that the SAA, and not cash, is an investor’s default position. When there is market turmoil, fleeing into cash can be extremely costly – market timing has time and again proved to be a futile exercise. Once out, investors are unlikely to re-enter the market at the right time and tend to miss the rallies that follow.
Tactical asset allocation
In the shorter term, when the immediate outlook for certain asset and sub-asset classes changes, investors may want to stray from their chosen SAA to take advantage of deviations from long-term trends. As the economy accelerates and decelerates, cyclical stocks such as industrials and consumer discretionary tend to, respectively, outperform and underperform the rest of the market. Thus, in accordance with the market cycle, investors may want to increase and/or reduce their exposure to these particular stocks.
However, tactical moves are not always straightforward to implement. This is especially true nowadays as market signals are blurred by political noise.
For example, how should investors navigate something as unpredictable as a trade war, in which the rules of the game can be altered at any moment?
Our approach provides a framework to tackle active tactical investment in this environment. Political factors, such as Brexit or the China-US trade dispute, are considered an external shock and are, by definition, unpredictable. In such situations, investors overreact and the framework suggests to buy risk assets as the risk premium spikes.
When examining tactical moves, to complement the qualitative analysis, I make use of quantitative indicators, which help me to better understand what’s happening in markets. By combining a sound and disciplined judgmental approach with a review of market indicators, market action can be analysed in the context of the broader investment environment in which we operate.
Portfolio construction and implementation
One of the beauties of investing is that different assets do not behave in isolation. They are intricately interconnected and present different correlations in distinct situations over varying time horizons – and play specific roles in an investor’s portfolio.
There is the textbook case of bonds and equities, which, since 1998, are negatively correlated in the short term, providing diversification in turbulent times (although this fundamental investment principle has proven not so reliable in this era of ultra-low interest rates).
Portfolio construction is key and much time and effort should be dedicated to ensuring that it meets objectives
As if it wasn’t complex enough, investors also have to decide how much credit or duration risk is appropriate. They need to take into account currency risk and be mindful of how equity factors such as cyclicality or momentum affect their portfolios, among many other considerations. Equally important is the instruments used to implement the portfolio and the choice between an active or passive, systematic or judgmental approach in the implementation. Studying these relationships and applying them in a portfolio to achieve an investor’s goals is what constitutes portfolio construction. It is an exercise that lies at the frontier between art and science.
One of my fundamental investment beliefs is that portfolio construction is key, and much time and effort should be dedicated to ensuring that it meets objectives.
Risk management
A portfolio is not a static entity frozen in time. As markets move, some up, some down, so do portfolio weights, factor and risk exposures. Consequently, to meet an investor’s return and risk targets, the portfolio must be monitored and adjusted if needed. Keeping a close eye on systematic and specific risk factors and tracking errors versus benchmark is part of it. This step of the process can be difficult to achieve for some individual investors and advice from an investment professional can often help.
Yves Bonzon is the group chief investment officer of Julius Baer
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UAE currency: the story behind the money in your pockets
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Tips to keep your car cool
- Place a sun reflector in your windshield when not driving
- Park in shaded or covered areas
- Add tint to windows
- Wrap your car to change the exterior colour
- Pick light interiors - choose colours such as beige and cream for seats and dashboard furniture
- Avoid leather interiors as these absorb more heat
Ticket prices
General admission Dh295 (under-three free)
Buy a four-person Family & Friends ticket and pay for only three tickets, so the fourth family member is free
Buy tickets at: wbworldabudhabi.com/en/tickets
Mercedes V250 Avantgarde specs
Engine: 2.0-litre in-line four-cylinder turbo
Gearbox: 7-speed automatic
Power: 211hp at 5,500rpm
Torque: 350Nm
Fuel economy, combined: 6.0 l/100 km
Price: Dh235,000
UAE currency: the story behind the money in your pockets
Results:
2.15pm: Handicap (PA) Dh60,000 1,200m.
Winner: AZ Dhabyan, Adam McLean (jockey), Saleha Al Ghurair (trainer).
2.45pm: Maiden (PA) Dh60,000 1,200m.
Winner: Ashton Tourettes, Sam Hitchcott, Ibrahim Aseel.
3.15pm: Conditions (PA) Dh60,000 2,000m.
Winner: Hareer Al Reef, Gerald Avranche, Abdallah Al Hammadi.
3.45pm: Maiden (PA) Dh60,000 1,700m.
Winner: Kenz Al Reef, Gerald Avranche, Abdallah Al Hammadi.
4.15pm: Sheikh Ahmed bin Rashid Al Maktoum Cup (TB) Dh 200,000 1,700m.
Winner: Mystique Moon, Sam Hitchcott, Doug Watson.
4.45pm: The Crown Prince Of Sharjah Cup Prestige (PA) Dh200,000 1,200m.
Winner: ES Ajeeb, Sam Hitchcott, Ibrahim Aseel.
World Cup final
Who: France v Croatia
When: Sunday, July 15, 7pm (UAE)
TV: Game will be shown live on BeIN Sports for viewers in the Mena region
KILLING OF QASSEM SULEIMANI
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Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
Gulf for Good raises funds for partner charity projects through challenges, like climbing Kilimanjaro and cycling through Thailand. This year’s projects are in partnership with Street Child Nepal, Larchfield Kids, the Foundation for African Empowerment and SOS Children's Villages. Since 2001, the organisation has raised more than $3.5 million (Dh12.8m) in support of over 50 children’s charities.
Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).
Killing of Qassem Suleimani
More from Rashmee Roshan Lall
Brief scores:
Pakistan (1st innings) 181: Babar 71; Olivier 6-37
South Africa (1st innings) 223: Bavuma 53; Amir 4-62
Pakistan (2nd innings) 190: Masood 65, Imam 57; Olivier 5-59
What is an ETF?
An exchange traded fund is a type of investment fund that can be traded quickly and easily, just like stocks and shares. They come with no upfront costs aside from your brokerage's dealing charges and annual fees, which are far lower than on traditional mutual investment funds. Charges are as low as 0.03 per cent on one of the very cheapest (and most popular), Vanguard S&P 500 ETF, with the maximum around 0.75 per cent.
There is no fund manager deciding which stocks and other assets to invest in, instead they passively track their chosen index, country, region or commodity, regardless of whether it goes up or down.
The first ETF was launched as recently as 1993, but the sector boasted $5.78 billion in assets under management at the end of September as inflows hit record highs, according to the latest figures from ETFGI, a leading independent research and consultancy firm.
There are thousands to choose from, with the five largest providers BlackRock’s iShares, Vanguard, State Street Global Advisers, Deutsche Bank X-trackers and Invesco PowerShares.
While the best-known track major indices such as MSCI World, the S&P 500 and FTSE 100, you can also invest in specific countries or regions, large, medium or small companies, government bonds, gold, crude oil, cocoa, water, carbon, cattle, corn futures, currency shifts or even a stock market crash.
Top 10 most polluted cities
- Bhiwadi, India
- Ghaziabad, India
- Hotan, China
- Delhi, India
- Jaunpur, India
- Faisalabad, Pakistan
- Noida, India
- Bahawalpur, Pakistan
- Peshawar, Pakistan
- Bagpat, India
Where to buy
Limited-edition art prints of The Sofa Series: Sultani can be acquired from Reem El Mutwalli at www.reemelmutwalli.com
Buy farm-fresh food
The UAE is stepping up its game when it comes to platforms for local farms to show off and sell their produce.
In Dubai, visit Emirati Farmers Souq at The Pointe every Saturday from 8am to 2pm, which has produce from Al Ammar Farm, Omar Al Katri Farm, Hikarivege Vegetables, Rashed Farms and Al Khaleej Honey Trading, among others.
In Sharjah, the Aljada residential community will launch a new outdoor farmers’ market every Friday starting this weekend. Manbat will be held from 3pm to 8pm, and will host 30 farmers, local home-grown entrepreneurs and food stalls from the teams behind Badia Farms; Emirates Hydroponics Farms; Modern Organic Farm; Revolution Real; Astraea Farms; and Al Khaleej Food.
In Abu Dhabi, order farm produce from Food Crowd, an online grocery platform that supplies fresh and organic ingredients directly from farms such as Emirates Bio Farm, TFC, Armela Farms and mother company Al Dahra.
The specs: 2018 Nissan Patrol Nismo
Price: base / as tested: Dh382,000
Engine: 5.6-litre V8
Gearbox: Seven-speed automatic
Power: 428hp @ 5,800rpm
Torque: 560Nm @ 3,600rpm
Fuel economy, combined: 12.7L / 100km
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
ADCC AFC Women’s Champions League Group A fixtures
October 3: v Wuhan Jiangda Women’s FC
October 6: v Hyundai Steel Red Angels Women’s FC
October 9: v Sabah FA
Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
