Investors are being encouraged to hold an increased allocation to defensive assets to protect themselves against market turbulence, according to Quantum Financial.
In its latest Investing Insights report, the financial advisory firm said they expected the next 12 months to be a ‘rough ride’ for investors thanks to risks such the US/China trade war and Chinese debt.
“We recommend clients retain their current underweight exposure to growth investments with a preference for US over Australian equities,” the firm said.
“We won’t be immune to market falls but lower growth exposure should mean portfolios won’t fall as much as markets will and the extra allocation to defensive assets can be used to re-invest back into markets at lower prices
“We continue to seek out investments that provide clients with dependable, quality income, although in a falling yield environment, this is becoming more difficult. We hold the view the Australian dollar will fall towards US 65c and so prefer to hold unhedged investments at this time.”
The firm also said it was favouring low risk, diversified exchange traded funds (ETFs) issued by quality product providers and had expanded its list of favoured ETFs.
These risks were exacerbated by the fact central banks had limited means to respond to any negative shocks, with the Reserve Bank of Australia having cut rates twice this year to one per cent because they were worried about the economic outlook.
“It is worth remembering that central bank cuts did not stop recessions in the US in 2008, Europe in 2011 and Japan in 2014. They can sometimes delay the inevitable, but they cannot prevent recessions forever. If underlying economic conditions deteriorate, it will likely end the current global economic cycle despite all the efforts of central bankers.”