January 24, 2011

Exploring Tactical Allocation in the Developed and Developing Worlds With Brian Singer, Part 2

 

Even as tactical asset allocation becomes more ubiquitous as a means for enhancing reliable long-term returns, there remains a lack of consensus among investment advisors over what it entails.

I recently sat down with Brian Singer, CFA, the CEO and Chief Investment Officer of Singer Partners, to learn the reasons for his firm’s focus on tactical asset allocation as a core investment strategy.

In Part 1 of our conversation, we attempted to define tactical asset allocation and learn how advisors can implement it successfully. In Part 2 of our exchange, below, we discuss time horizons and asset classes in the context of tactical investing.

Mike Henkel: What trends or dynamics are you most focused on over the long term, with respect to wealth management and portfolio construction?

Brian Singer: Long-term global demographics are among our chief areas of interest. Roughly speaking, we can divide the global economy into two markets: the developing and the developed world.

The developing world is young and growing, with a workforce that is expanding quite significantly relative to its population. In contrast, developed countries are facing a population that is older and declining in size, absent immigration, resulting in more consumers versus savers. These demographic trends have significant implications for investors, as the center of gravity for growth and expansion shifts.

Mike Henkel: What about over the short term?

Brian Singer: For the next five years, we’re paying close attention to inflation and how central banks around the world respond to their countries’ fiscal policies and social spending. We’re especially concerned about how the central banks handle inflation. We generally expect interest rates to rise, which will hurt the bond market. At the same time, we expect increased government borrowing, and are already seeing this in Europe. Hence we are under-weighting bonds, especially the sovereign bond markets.

Mike Henkel: How does the investment horizon factor into this picture?

Brian Singer: Given today’s volatile market environment, the typical holding period for certain securities, such as mutual funds and ETFs, has shortened from years to months.  The rise of alternative investment managers, who strive to provide absolute returns with minimal downside, has also led to more rapid trading. The result is an overall investment environment skewed toward monthly and quarterly returns. This provides an opening for strategies rooted in long-term fundamentals.

As long-term oriented dynamic investors, we’ve found that the most lucrative investment opportunities are still developed over several years. Our aim is to be mindful of short-term market dynamics so that we can capitalize on long-term opportunities.

Mike Henkel: What asset classes do you like and why, given the market environment?

Brian Singer: We are generally favorable on equities, finding greater investment opportunities in Europe and emerging markets than elsewhere. We are also interested in currencies. Although the U.S. dollar appears attractive on a fundamental basis, investors are concerned about monetary policy, which is limiting our desire to go long on the greenback. We are underweighting the yen and euro, but overweighting Asian currencies with ties to the U.S. dollar, such as the Chinese Yuan, the South Korean Won and the Thai Baht. 

(Read Part I of Mike Henkel's conversation on AdvisorOne with Brian Singer.)

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