Investment advices

All analysts point in the same direction: a year marked by volatility and the normalisation of monetary policies. Here are some investment tips for 2018.

As for fixed income, the truth is that it should not be a priority for 2018. However, we have provided some strategies and products to balance our global portfolio with these types of assets.

As far as equities are concerned, experts still have their eye on Europe. This 2018 may come with a few surprises of volatility. For this reason, the best advice is basically active management and diversification.

Interestingly enough, these principles now apply more than ever to bonds.

Debt securities are marked by an expected rise in interest rates in the United States and the start of the normalisation of European monetary policy. This will cause bond valuations to fall.

It is recommended to be very cautious in fixed income this year. This may not be the best time and our portfolios should be focused on equity assets.

Although, without a doubt, a small exposure to this type of assets can provide an added stability in the architecture of the global investment basket.

Several analysts recommend a very active management in this scenario, as if it were equities. Those were the days when bonds could be included in the investment portfolio, time could pass and coupons could be collected, without worrying that the valuation of the assets could damage the assets.

2018 is marked by changes. Changes in monetary policy and the fear of rising inflation.

Strategy and prudence are the best advice that can be given in fixed income for 2018.

But what fixed income strategies work best in such a scenario?

Fixed income investment strategies for 2018

Long-term fixed income exposure is not recommended. These types of assets are more sensitive to inflation and will suffer more from stated intentions to change monetary policy.

There are certain managers who have a clear preference for corporate debt, leaving aside sovereign debt. The objective is clear: if we juggle credit risk, we can achieve greater profitability.

High yield” bonds are an option for those who can afford less risk aversion. Once again, however, we see diversification as the best weapon to combat credit and duration risk.

Let’s see an example of this.

Examples of fixed income products for 2018

Good management and diversification is what defines one of the best fixed income funds. Exactly the recipe so that fixed income (the little exposure we can have in favor of portfolio stability) can be of some use to us during 2018. We’re talking about Gam Star Credit Opportunities.

This fund has an annualized appreciation of 7.72% over the last three years (accumulated return over the same period of 21.93%).

How do you do it? Management, management and more management. Necessary more than ever for fixed income.

With a volatility of only 2.72%, the Gam Star Credit Opportunities, denominated in euros, is investing globally. With a maximum of 20% of the portfolio in securities issued in Emerging Markets (one of the best fixed-income strategies in the scenario described).

Government bonds, subordinated debt securities, preferred stock, convertible securities, corporate bonds and contingent capital notes make up your investment portfolio. Playing this way with credit risk; in other words, diversifying.

The fund has what fixed-income investors need for 2018, a good managerial capacity.

Management capacity and diversification is the best recipe. As the CEO of Tressis Gestión, Jacobo Blanquer, states:”Our clients do not pay us for losing money”. Perhaps this is why the mixed fund it manages, the Adriza Global FI, has little exposure to fixed income and an accumulated return of 36.86% over the last five years.

In short, fixed income is not going through its best times. A small contribution to our portfolio in search of stability is not a bad idea, as we can see from the investment policy of Adriza Global FI. Greater exposure makes it necessary to manage the portfolio with equity strategies.

Investment advice on variable 2018

In line with the above, for 2018, active management of this market is also recommended.

This year has seen a marked increase in volatility, which could jeopardise our profitability if we lose sight of the situation.

WHAT TO CONSIDER WHEN DEVELOPING YOUR MUTUAL FUND PORTFOLIO

There are investors for all tastes: from those who are self-managed, decide what to invest their money in and even carry out the operation themselves, to those who rely on specialized managers of a bank or entity to invest their money, decide which assets it is better to invest in and move it around according to the circumstances. Either way, what is clear is that the individual investor wants to be more and more informed about their investments, and it is a very healthy and almost mandatory exercise to be aware of the funds in which your manager has decided to invest. Building a portfolio of funds is a strategic exercise in which many factors need to be taken into account. Whether you’re going to do this directly or rely on specialists, you want to know what the basic factors are to take into account to track your investments:

Risk profile

The starting point is to know what your risk profile is. Between being a conservative and a risky investor, there is a wide range of greyscale that will depend on the objective of your investment, your vital moment, how much you are willing to risk, your tax profile and other elements of context. It is important to tailor the assets in which the fund or funds you choose for your money invest to your risk profile. In this way, funds investing in riskier assets, such as bonds, will be more suitable for conservative investors and, as the risk to be assumed increases in order to obtain better returns, the share of investment in equities, for example, will grow.

Diversification

The effect of diversification is significant, which is why it is important to know the main categories and typology of funds that exist, since the supply today is very wide. With a focus on diversification, alternative management funds are an important part of the portfolio. Regardless of the risk of the same, we will always find funds in accordance with the investor profile that allow us not to have all the risk in the same asset or geographical area, but to have a balanced portfolio that allows us to compensate for unexpected behaviour in any asset or area. The distribution of assets, such as the weight given to equities versus bonds, is a key factor on which the return obtained will depend and must always be aligned with the investment horizon and the investor’s risk tolerance.

Investment Horizon

It’s basically about deciding what term you want to invest in. Generally speaking, when talking about funds, we usually think of a medium and long term investment so that the investment makes sense, but it is important to consider how many months or years you want to invest.

Quality of the background

Measuring the quality of a fund in which you are going to invest your money is a good practice and for this you will have to dive into the pages that make this information available to the investor. We must also take care of the type of funds we choose, especially in cases where there is a type of distribution and distribution, whether or not we want to receive periodic income.

There are various platforms that compare mutual funds by performance and by category; one of the best known is Morningstar, which bases its hierarchy on’stars’ and thus gives 5 stars to the top 10%, 4 stars to the next 22.5%, 3 to the next 35%, 2 to the next 22.5% and one to the worst performing 10%. Others analyse the performance achieved or compare fund managers, giving each one a rating. Other key figures that can be taken into account are the volatility, sharpe ratio, alpha or beta of the fund.

Fund managers

Knowing the professionals who manage the fund or funds you are going to invest in is important, as they will make the investment decisions about your money. If you take the trouble to find out more about the manager of your fund, you will know what his management style is and how his investment preferences are evolving. If they are also the so-called’author’s funds’ with even greater reason, as they are usually headed by’star managers’ who, if at any given time, leave the fund, they can lead to a change in the management of the fund and even the departure of a large number of participants.

Taxation and commissions

It is important to know the taxation of the different products in which you can invest your money and how the returns, positive or negative, you get from your investment can influence your accountability to the Treasury. Some products may be more convenient than others, so it is necessary to take this into account, as well as the commissions that entities may charge on each of the products.

Portfolio simulation

We currently live in an environment of low volatility across all assets. If we simulate the portfolio to see how it can work, we need to look at other risk ratios such as the historical maximum fall in the portfolio.