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  • Keeping an Investment Portfolio Safe from Drawdowns

     

    Gina Sanchez, a speaker at the marcus evans European Pensions & Investments Summit 2012, talks about pension fund investing in today’s economic landscape.

    Interview with: Gina Sanchez, Director, Equity and Asset Allocation Strategy, Roubini Global Economics


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    The investment portfolios with the highest quality assets will be those that stand the test of time, says Gina Sanchez, Director, Equity and Asset Allocation Strategy, Roubini Global Economics. The stronger the portfolio is going into the deleveraging process, the better it will be when it comes out of it, she adds.

    A speaker at the marcus evans European Pensions & Investments Summit 2012, in The Netherlands, 14 - 16 May, Sanchez, from one of the world’s leading economic and market strategy research firms, shares her outlook on the Eurozone, asset allocation in today’s economy and why “Quality will be king”.

    What is your outlook on the Eurozone? What is the next big risk?

    The next big risk is Spain and the need to capitalise its banking system. If Spain requires a bailout, that would be very unsettling for the markets and could kick off a round of contagions. The European Central Bank will not be able to handle Spain and Italy having a crisis simultaneously.

    What asset allocation delivers results in a yield-starved world?

    It is hard to imagine much return coming from the developed markets, treasuries and even credit to some degree. Pension funds will have a tough time maintaining their funding statuses. Once balance sheets are cleaner, there could be a potential for some good quality equity returns, but we are envisioning deflation and weak demand for the next ten years, which does not go well for equities.

    The debasing of currencies could bring about some long-term investment opportunities. The focus has been shifting to real assets i.e. land, collectibles, art work, etc. We support land funds, water and real estate where there is real demand. As more people cross over the poverty line into the middle class, the demand for these assets will go up. These will be the next long-term players.

    What should investors look for in the emerging markets?

    Strong domestic demand coupled with a credit growth cycle - like Brazil, where we are seeing more mortgage products and lending to small businesses - will create more demand for services and infrastructure. This is very positive and Brazil is at the top of the list. The equities and fixed income of these countries will be interesting. The pension fund industries in these countries are growing and there will be demand for local currency fixed income products.

    Why do you recommend US corporate credit versus stocks?

    That is a long-term tactical play, where you want to be as close to the cash hoard as possible. Today, there a lot more cash in the US than Europe with high grade corporates sitting on mountains of cash. The health of these companies is in their balance sheets and not necessarily in their earnings power. There is very little that shows us that demand will grow, so we want companies that have the ability to play and produce revenue.

    Any final words of wisdom?

    The investment portfolios with the highest quality assets will be those that stand the test of time. Investors need to look at their portfolios and try to understand the short-term tactical plays as well as where they can find long-term opportunities.

    If I were to give one piece of advice, it would be to make sure that every single item on the portfolio is as strong as it can be, because that is what will keep it safe from drawdowns as we continue the deleveraging process. Quality is going to be king.




     


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