Rupert Connor Senior consultant for Acuma Wealth Management
Gary Dugan Chief investment officer for private banking at Emirates NBD
Sarah Lord Chartered financial planner, wealth planning director at Killik & Co
Vince Truong Senior financial planner at Holborn Assets
Is the worst over for investors?
Rupert Connor: they're saying this year is going to be very turbulent, so I don't think we've quite seen the worst of it.
Vince Truong: I think, fundamentally, the worst is behind us. The numbers from the US prove that. We're seeing manufacturing numbers and indexes that are hitting more highs - things we haven't seen in a decade, in some cases.
Currency risk: What should investors keep in mind regarding currencies?
Sarah Lord: they have to consider what they're earning in and what they're spending in - and not just today, but where they may plan to live or retire in the future, and ensure they're covering currency risk from that perspective. Lots of people, I think, are unaware of the impact a weak dollar or sterling can have on their overall wealth and spending.
RC: as a general rule, we tell people to get their earnings out ... whether it goes to a deposit account or a bank account. If someone is earning in dirhams, a small part of that wage should be saved in dollars. A lot of people will be paid in sterling; as you go back to the UK, you wouldn't be losing out on currency so much.
Gary Dugan: we found that the high-net-worth guys have been keeping a lot of money here. It's more of a transitory thing; it's because of the high interest rates that have been available in the local market. You send it back to the UK or US, you get next to nothing, so they've been prepared to take the currency risk because they've been locking in on 3 per cent to 5 per cent interest rates on short-term deposits. Now, that game is sagging and going away, and they'll go back to just repatriating it.
VT: I think one thing you need as an expat is just to be able to hold offshore accounts in multiple currencies. That will alleviate some of that risk to some degree.
Real estate holdings: How is the regional property market looking for investment opportunities?
GD: regionally, our real estate analyst has gone a bit like the markets; he's got a bit more enthusiastic recently. You might not expect the international investor to rush in because of some of the problems we've had, but since people from Egypt and Tunisia started to look for a safe place to have a home, we have seen quite a bit of money coming in from both of those countries recently. We've also seen more Europeans arrive; I call them tax refugees. Clients have been selling properties on The Palm. There's almost been a bidding game going on. We are starting to see a more vibrant, patchy market here.
VT: I've spoken to real estate professors, lawyers, property developers; all of them said they would not invest in real estate here. I think if you're going to look at property, you should recognise there is risk embedded in this country that looks first world on the outside but is still a very young country beneath. That's fine if your job is completely secure and maybe your other assets are relatively conservatively invested. But if you're in an unstable job, have a risky property investment and a risky portfolio, you need to be aware of that and maybe dial down the risk in some of those areas.
Any promising property deals outside this region?
SL: globally, we're still saying to clients that there should be an element of investment in property - from a commercial property point of view. I don't think we're in a position where we're really encouraging further investment, but we're certainly suggesting clients keep an element of diversification through commercial property because of how the fundamentals are looking over the longer term and you will see an overall gain.
RC: Acuma formed a partnership with an investor property company called IP Global recently. They were brought in so we could offer our clients investment property should they want it. Like an investment bank, they'll send a team of analysts into a market and research with due diligence. Their key markets are Hong Kong, Malaysia, Kuala Lumpur and London. I definitely like to see clients have exposure to property. It makes perfect sense, in certain areas.
SL: my view on UK property is from a residential perspective. We're going to see further falls in property prices, which I think may put some fear in people. London tends to be its own pocket; certain areas will fall but other areas may rise because of the Olympics coming in and certain things like that.
Portfolio protection: How are you preparing portfolios in case there is more turbulence?
VT: in the short term, we've recently overweighted to developed markets and underweighted emerging markets. The regions that led us out of the recession, I think, are correcting right now.
GD: I think you saw that huge wave of money that went to emerging markets through the previous two years. This is unsustainable. Also, we were seeing developing markets starting to come on their own with stronger growth than you might have expected. [Some investors] said: "Well, I don't need to be chasing something that's done as well as something in the emerging world; I can go to the developed world and pick up some yield."
SL: we're diversifying back towards developed markets, but also looking to play emerging markets more from a thematic approach. So we are looking at companies with strong fundamentals in developed nations that have grown their business in emerging markets. For example, Volkswagen is one that we've been looking to invest in because of the way it's looking to grow towards the emerging markets.
RC: we're using a lot of emerging-market debt, some cash funds and gold funds. It's really having the conversation with your clients and what their expectations are.
Are there specific asset classes that you are suggesting investors consider?
GD: no. You know, we talk about emerging-market debt. Some of these things are all pretty new to many investors. People just woke up to a theme that had actually been in place for 10 years - the changing of leadership of the world. What we're seeing is that people are perhaps more prepared to see these as normal things to invest in. With emerging-market debt, emerging-market equities, people don't even think about those things. They just say: "Am I buying Russia? Brazil?" They start breaking it down to sub-sectors, which means there's a longer-term commitment to these things. We think there should be, and a repositioning of portfolios away from developed assets and into emerging or new-world assets.
SL: we've been encouraging more diversification because of the uncertainty of 2011, so we are ensuring clients really are diversified and that they're not too weighted towards the emerging markets. We still do have clients who believe that is the only place to invest. We've been doing a fair bit of work with clients sitting on a lot of cash. They are starting to think: "I am wanting to invest and should be back in the markets." That's highlighting the need for diversification.
RC: I like the story in Asia, like China, Thailand and [South] Korea. If you look at those countries and what they're doing, I think that's where the future lies.
VT: I think anything that can give you a negative correlation to stocks should be part of your portfolio. That just means it moves in the opposite direction of stocks, or at least independently of stocks.
Can you share some examples?
VT: managed futures. Commercial property we've been in for a few years now, particularly more towards the developed market. Even though we're allocating away from emerging markets, there are still areas that are late to the game. Sub-Sahara Africa for more speculative investors, I think, still has a lot of untapped potential; you are seeing people with more income and you are seeing the development of their own local securities exchanges.
RC: I think six out of the top 10 countries that grew last year were African.
VT: exactly. It's just something people haven't looked at.
What areas should investors avoid or be cautious about?
VT: I think we've had such a great run on emerging markets, but those who are more aggressive can't forget how volatile it can be. That's where we get complacent on maybe not having enough fear.
GD: we had a small investor conference recently, where we asked for a show of hands in Abu Dhabi and Dubai about what asset classes you were going to add or be very excited about. They said: "Emerging market equities and commodities." I said: "Please put your hands down and reconsider" because it was this wave of enthusiasm just because something had gone up 20 per cent the previous year. Clearly, you want to be buying when things are falling, not when they're going up in price. On commodities, people just want to buy everything without looking at the specifics, at different metals or agricultural products. Copper is a good example of something in short supply, but it priced up about 20 per cent in the past four months. I think, unfortunately, retail investors are going a bit too gung-ho on things that looked great for 2010, but won't necessarily follow through.
RC: there's talk of UK bond funds being the next big scandal, with big crashes, but they've been saying that for the past nine months. There's always an argument to use government bond funds because they were pretty reliable. If someone had a low appetite for risk, then you could do that alongside cash and fixed interest. There's a lot of people out there in those.
Gold exposure: What is your take on gold?
SL: we're maintaining exposure for clients, mainly through ETFs [Exchange Traded Funds] or funds. We're not necessarily increasing that. Our view is it's always the place people fly to in a flight to safety. Maybe there's been a little bit of over-investment in it and as to whether we're going to continue to see the price rises we have had, I'm not sure, really.
VT: gold should always be part of a portfolio. It's a fear hedge; it's an inflation hedge; it's a currency. Very few asset classes can do all three of those things.
GD: it's a strategic holding. It's not a tactical holding. If you want to play around, do it on a day trader's book, not in your own portfolio.
Going forward: Your final advice for investors as they go forward?
RC: save as much as you can.
SL: maintain diversification.
VT: I'd say really clarify what's important to what you really want and have an actual plan. Don't just sign up for an investment without having an overall plan. Then align your investments to that plan.
GD: one of the biggest difficulties at the moment is changing the mindset away from too conservative of an approach. I think maybe it's not just going to be for the next year or two, but maybe even longer. We find very, very few investors where we have to tone them down in terms of what they're doing.
