Financial Markets Update & Portfolio - DMG Diversified Portfolio

tablet-1939255_1280.jpg

We felt it appropriate to provide a brief update on the above based on the recent share market falls and how we are positioned in the DMG Diversified Portfolio (DMG DP).

You are not 100% exposed, unless that’s what you wanted

If you have a growth asset allocation, around 30% of your investments will be in Term Deposits or cash. This portion will not be affected by the share market falls.

For those with a balanced asset allocation, the number is around 50% in cash and Term Deposits. Great news at times like these.

Part of our process to set up a portfolio is to discuss investment risk in detail with client and do our best to arrive at an allocation that is a good fit for you. One that provides the combination of investment returns  and the level of risk that suit you and your situation. Of course you can always aim for higher returns, but that brings with it higher risk. Finding the right balance for you initially and then ongoing is something we work hard at. It is always addressed at our regular progress meetings.

We use Term Deposits

This has been a tough decision, but a successful one. It is very difficult to sit in front of you and recommend or explain that we are using Term Deposits at a time when interest rates are at record lows. However as we often say, earning 2.5% to 3.0% per year is better than suffering losses. We are very focused on providing protection for your assets, whilst striving for a reasonable return.

We use Alternative Assets to further reduce risk

This is an area where things get complex. Alternative assets or hedge funds come in many different forms. Some are used to target very high returns and bring with them a very high level of risk. We do not do this. We select Alternative Asset funds that are structured to add value during difficult periods in the market, like the one we are experiencing right now. This means that when share markets are falling, these investments are designed to make money. Again we have been satisfied with our decision to take this approach. The DMG Diversified Portfolio has been far less volatile and not suffered the losses experienced by the share markets.

These points amount to a good level of protection, but not immunity

Total protection is only available by investing 100% in cash and Term Deposits, an approach which will provide comfort during difficult periods, but presents the risk of the returns being too low to enable you meet your needs, goals and aspirations.

Back to the markets

Much of the news at the moment rightly relates to China. The falls have been dramatic as has the decision to close the stock exchanges twice this week. Additionally the rest of the financial markets did not have sufficient confidence to withstand these events and fell as well, although to a much lesser degree.  Our view and that of Bart Dowling, our Portfolio Manager, is that this is most likely a short term issue. At this stage there is no evidence of a more significant or broader problem, such as major bank failure.

Oil could go lower, even to around $20 a barrel, but it is close to a turning point. Keep in mind that low oil prices are generally very good for businesses and consumers as it means lower costs. Of course Oil producers and explorers and those companies that service the Oil Industry are suffering and will continue to do so at these price levels.

What if we are wrong? 

It is possible that our view is not correct and the problems may persist over an extended period. At the DMG DP we have positioned the portfolio so that we can make changes at short notice if needed. We do not time in and out of the market on a regular basis, but where appropriate, we are prepared to make changes. We have done this and will continue to do so.

We are in your corner

We have been expecting shocks and believe that we are well prepared at a number of levels to deal with these. We were able to demonstrate our effectiveness on a number of occasions during the last financial year. Investing is not easy and we will continue to be tested. You can be assured that our current positioning, regular monitoring and readiness to adapt will help deliver the outcome we are all seeking.

By Gary Lucas, Financial Planner, DMG Financial Planning in Sale & Yarram in Gippsland.