A global fund manager has recommended individuals prioritise portfolio allocations to assets with characteristics such as shorter payback periods given the current economic landscape.
“Moves in equities [seen in 2022] have rammed home the importance of risk management. For investors, this means avoiding assets that magnify market moves, owning assets with shorter rather than longer payback periods and selecting funds that consistently deliver positive results,” Talaria Asset Management co-chief investment officer Hugh Selby-Smith said.
With regard to preferred investment regions, Selby-Smith suggested equity markets outside the United States will provide the opportunity for stronger returns due to lower starting valuations.
Further, he noted any rebalancing of portfolios undertaken this year should be performed with a view of reducing risk.
“One of the keys to wealth creation is holding on to as much of it as possible in down markets so that capital can then work for you when things improve,” he said.
“Amid high inflation, it pays to own assets that allow you to recoup your investment sooner rather than later. This is because with inflation increasing, a dollar now is worth more than a dollar in the future.”
According to Selby-Smith, investors would do well to concentrate on purchasing shares that will deliver income rather than capital gains for this year and several years to come as global markets are transitioning away from a period of elevated capital growth driven by historically high asset prices.
“Income matters and always contributes to returns, but capital doesn’t actually contribute every decade. In fact, in the S&P 500 there have been three, the 1910s, 1930s and more recently the 2000s, where investors had no return from capital appreciation,” he said.
“The importance of income usually increases after a period where capital gains have been very strong. The most recent period is certainly one of those environments.
“This leads us to believe that the 2020s is very likely to be a decade where capital gains will be a far lower contribution of return, highlighting the importance of income.”
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