Strategic Asset Allocation Critical

Published on 19th May 2020

In periods when the economic outlook is uncertain, investors should prioritize rebalancing.  Although it is difficult to predict what the global pandemic will really hold for different asset classes, rethinking one’s asset allocation strategy amidst the current market turmoil has never been more important.

There is no doubt that the economy and markets will spring back especially with the many progress being made to overcome this global crisis.  However, full recovery might take time, and so it is crucial for investors to add some resilience into portfolios in order for them to meet their financial objective.

As there is much that can distract investors in stressed markets, it’s just prudent to work with investment professionals in order to achieve a deeper level of insight to smarter wealth management.  Given the inherent uncertainty about how the current situation will evolve, we at Skycap believe we should be modestly overweight Equities, Fixed Income and Real Estate at this point of time. Gold remains a strategic and important asset so it is a part of our core holding. It is best to stay away from commodities and related companies for now.

Equities

Since the monetary policy environment will remain supportive of equities in 2020, lower interest rates and low inflation make US equities more attractive. Valuations are not cheap for US equities but we recognize that valuations have not often been a good predictor of equity performance in the shorter term- 

On a sector-by-sector look on the biggest winners and losers in this economic downturn, E-commerce, Pharmaceuticals, Video Conferencing, Entertainment Streaming and Gaming are on top of the list of sectors weathering the pandemic.  On the other hand, Travel, Airlines, Tourism and Oil and Gas are the industries facing the sharpest end of the crisis.

Fixed Income

There are compelling reasons for us to think interest rates will remain at or near their current very low levels for some time. The trend was apparent over recent years, even before the coronavirus hit: central banks have repeatedly showed their willingness to loosen the reins in the face of economic headwinds. 

Alternative Investments

Most real estate investments should continue to deliver moderately positive returns. The veteran banker also remains modestly overweight to gold, while his outlook for the global base metals industry is negative.   

On Private Equity, there are rising start-ups in Tech space that would generate exceptional returns. With this, Skycap expressed confidence on fintech as the more promising space for PE compared to traditional brick and mortar firms.

Finally, where Foreign Exchange is concerned, the U.S. Dollar is still a safe-haven currency. I remain bearish on Australian Dollar and New Zealand Dollar, and neutral on Japanese Yen and Euro.

By Saikat Kumar

Founder and CEO of the Dubai-based global financial services firm SKYCAP Investment Management Ltd.


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