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7 WAYS TO MAINTAIN A HEALTHY PORTFOLIO

JEAN-LUC LE TOCQ Head of Private Banking

The coronavirus pandemic hit markets hard. According to Jean-Luc Le Tocq, Head of Private Banking at Julius Baer in Guernsey, it is important to stay calm and maintain a long-term view. This message was echoed during the bank’s Guernsey Autumn Market Outlook event where speakers outlined that the global markets are currently in a steady recovery and hopes of a swift rebound are slim. Here Jean-Luc presents 7 ways to maintain a healthy investment portfolio.

Accept a certain level of risk Of course in moments like these, the temptation to reduce risk and limit the drawdown in the short term is extremely high. It is precisely in these moments that we should remember that we cannot control the short-term direction of the market. We are rewarded for accepting those risks in the short term with superior long-term returns and if we miss strong days, strong weeks or strong months in the market, we will significantly impact long-term returns in our portfolio.

Think before you jump Every decade ends and starts with a major crisis – like the financial crisis in 2008 or the boom-bust cycle of the dotcom era in the late ‘90s and early 2000s. These crises shaped the decade to come, but eventually made way for good times. After this downturn of unprecedented speed, relative asset valuation has moved to recessionary extremes, meaning the price of quality in a portfolio is at a record premium compared to lower-quality assets – and that’s probably true to a large extent both in the equity space and the fixed income space. It might be tempting to jump into such perceived cheap assets of a lower quality. But we think that’s premature for a couple of reasons: number one, their low valuations might persist for quite some time and we’ll go through several ups and downs before the economy recovers – and markets reflect that. Number two: we are to an unprecedented extent hostages of policy decisions, so some companies might eventually be helped by policy makers to a greater degree than others, and government intervention in markets and the economy will also be very high going forward. Therefore, this situation may persist for some time to come. Don’t catch falling knives.

Stay positive about China One of the calls we made in our outlook is for a bipolar world, where we experience a Chinese-led economic and financial cycle coexisting with the well-known US economic and financial cycle. There again, we are fast-forwarding towards that new world. And more than ever we think China, which has been hit first by that pandemic, but has reacted very swiftly, will also be the first economy to recover. So more than ever, China is a core asset class in portfolios. Embrace digital health A particular area of interest for us is technology’s impact on the healthcare industry. Of course, we never imagined at the time that the virus would disrupt our life in anywhere near the way it has in the last few months. But this highlights the merits and the importance of exposure to healthcare companies in a portfolio – across a wide range of things, but in particular to biotechnology, and also very critically to all the digital enablers in life science. This comprises all the companies that facilitate the transition towards a digitally enabled, data-driven healthcare industry.

Don’t panic about volatility After the initial surge in market volatility we’ve come back to slightly lower levels, but still very high in historical perspective. You will be rewarded a lot to sell insurance today, and we think investors should take advantage of that market paradigm to cash in attractive risk premium on volatility.

Responsible investing is here to stay Last but not least, sustainability was already a major megatrend before this crisis. And given the consequences of the pandemic one can foresee for the economy, social life and politics, more than ever companies behaving in a responsible, sustainable way are likely to outperform going forward. It’s not a blip, it’s a trend. If you’re interested in learning about Julius Baer’s investment services for Guernsey residents, please contact Jean-Luc Le Tocq on 01481 702732 or jeanluc.letocq@juliusbaer.com