Private equity, commodities, fixed income tipped by SEB for diversification

Johan Hagbarth, investment strategist at SEB in Sweden, has picked private equity, commodities and fixed income as the three asset classes that can best help investors spread risk this year, as uncertainty still stalks the world’s stock markets.

Hagbarth said that the global outlook for equities is improving, driven by slight gains seen in China and some more speed in the US economy, where consumers are enjoying lower mortgage interest rate payments and slowly rising house prices.

However, because it remains difficult to forecast developments in financial markets, Hagbarth said it is important not to peg investment portfolio returns to any single market in assets.

Besides equities and fixed income, there are also assets such as hedge funds, commodities, private equity, property and currency to consider.

Private equity has had a good year, driven by a rising US market coupled with investors looking for more risk. Historically it is also the asset class the provides best returns in the wake of financial crises, Hagbarth said.

For investors with a positive outlook, who are looking for funds with proven ability to deliver returns in different market conditions, then this might be the type to look at.

Commodities are another asset class that benefits when economies pick up speed. Continued recovery in China and the US is important in this respect, because they are key buyers of commodities.

Even if there differences remain between the performance of different types of commodities, the fact that both China’s and the world’s economic growth rate will push higher in 2013 should support commodities prices, Hagbarth said.

Finally, the expectations that the current low interest rate environment will persist for the next couple of years has given rise to opportunities to invest in alternative fixed income strategies.

Emerging markets debt is one of the alternatives mentioned by Hagbarth. On the basis that the currencies of these markets continue to appreciate and that bond yields remain stable, then can provide an equity-like return of more than 10%, he said.


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