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5 Tips to ‘Spring-Clean’ a Portfolio

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Every year at springtime, daffodils bloom, robins hunt for worms and people file their taxes. It’s this last item that’s a reminder to investors that now is also the time to clean their portfolios.

For advisors, spring cleaning means freshening up a client’s portfolio by reviewing goals, taking profits and reallocating assets, says Mark Martiak, a New York-based senior wealth strategist and vice president at Premier Financial Advisors/First Allied Securities. Premier’s securities are offered through the independent broker-dealer First Allied Securities, which was acquired last August by private equity firm Lovell Minick Partners.

”I do this with all my clients,” Martiak told AdvisorOne in a phone interview on Thursday. “Advisors should be proactive and say, ‘OK, here’s your strategic and long-term core, and here’s your tactical and short-term satellite to mitigate volatility and counter market conditions. We want to sell some of the winners if it’s time to take some profits, and perhaps add to some of our losing positions.”

Mark Martiak, senior wealth strategist, Premier Financial Advisors/First Allied SecuritiesOnce Martiak (left) reviews a portfolio for the client’s asset classes, and once liquidity needs are reviewed, he’ll do some rebalancing in the long-term core, and then he’ll take a look at the portfolio’s satellite asset strategy and do some adjusting.

“Spring cleaning is important, but no less important than the fall cleanup,” Martiak said. “The quarterly portfolio reviews are always important, but in this period of coming off the best first quarter since 1998, advisors now have to look very carefully. We didn’t have a lot of volatility in the first quarter, but now volatility has started to creep back up due to economic and market sentiment, so it’s important now to really look at your portfolio and clean it out.”

Read on to read Martiak’s five tips for spring cleaning a portfolio.

1) Get Globally Bonded.

Europe continues to weigh on investors’ minds, but continued ‘disaster-level’ pricing of fixed income doesn’t account for the progress that has been made with the European Central Bank’s policy in addressing sovereign debt, Martiak said.

He recommends buying sovereign debt in European and Asian countries “because U.S. government bonds aren’t doing anything.” While Martiak strongly recommends high-yield U.S. corporate and municipal debt, he believes that global bonds from the U.K., France, Germany, Switzerland and the Netherlands diversify the fixed-income asset class.

“While there’s still the possibility of an ECB slip-up, the nature of the questions being debated in Europe have changed from existential to practical, so the risk and challenges have moved to a more granular level focused on policy and global linkages,” Martiak said.

2) Preserve Wealth Now.

After periods of extended volatility, when investors realize their portfolio hasn’t delivered returns despite the market gyrations, they may want to revisit the idea of employing a tactical allocation strategy that offers the potential to preserve and build wealth, Martiak said.

“It’s not too late to recommend the technology sector to clients who don’t have a technology exposure in their core investment strategy,” he said.

Advisors can do that by rotating some assets out of other sectors in the tactical satellite portion of a client’s portfolio. It could be 80% equities and 20% bonds or 60-40 mix, he believes, “and you have extra money set aside to really react and be proactive in the market.”

3) Look Global, Act Local.

U.S. corporations have generally been among the first companies globally to have benefited from the recovery, according to Martiak. Since strong productivity, low wage pressure and a drop in the U.S. dollar have all helped boost profit margins, U.S. multinationals should play an essential role in clients’ portfolios, he says.

 “I like large-cap growth, but I especially like the companies in the S&P 500 that are the multinationals,” he said. “You can rely on them for growth in capital and as well as getting paid income while you wait.”

He’s focused on the financial, technology, energy and materials sectors in the core European countries of France, the U.K., Germany, the Netherlands and Switzerland. In addition, Martiak likes emerging-market equities, while on the fixed income side, he likes U.S. corporates, sovereign debt and high-yield munis.

4) Go on a European Shopping Spree.

“We are seeing valuations that in many cases we have only seen during the Great Depression or, in some cases, in the 1970s when the economic situation was arguably in worse shape than it is today. I think it’s a rare opportunity to buy European stocks with such attractive valuations in this environment,” Martiak said.

While acknowledging that Greece and Portugal may leave the euro zone due to their fiscal woes, Martiak says that core European countries are now in a healthy state and that the euro zone will remain intact.

As for European sovereign and bank deleveraging, Martiak views that as a positive.

“It’s similar to what we’ve been through here in the U.S.,” he said. “I looked at a couple of European banks today—I won’t name names, but one of them is a famous bank out of London, and the other one is out of the Netherlands—and they’re still down in the portfolio of one of my ultra-high-net-worth clients and not paying dividend income. Maybe when I invested in those in the portfolios after 2008, mid-2009, I was way ahead of the call. But I also want to be there in the valley as we go up the trough to the peak.”

Cambodian dancers at opening of ASEAN summit in 2012. (Photo: AP)5) Capitalize on Cambodia.

Cambodia has one of the fastest developing economies in Southeast Asia, and the Asian Development Bank expects Cambodia to post the second-highest 2011 GDP growth in the region.

“In fact, there was GDP growth of 6.3% in 2010 versus 0.1% in 2009,” Martiak said.

He also noted that a Cambodian securities exchange opened last year and that the Cambodian government is encouraging foreign and local investment. Neighboring Laos opened its stock exchange in January 2011, and Vietnam’s exchange has been around since 2000.

“As of late February [the Cambodian exchange] hadn’t listed any companies, but the idea is that they will list government-owned entities like telecom and utilities and ports very soon,” Martiak said. “I’m watching substantial investment in transportation such as railroads, and particularly a link between the south of China, Singapore and Cambodia.”


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