Portfolio rebalancing should be timed: Xplore

Extreme market volatility has left many portfolios in need of some rebalancing but investors should be cautious of their timing while volatility remains high, according to Xplore Wealth chief executive Michael Wright.

"We have seen over the last four weeks trading levels double on normal levels as investment managers reweight portfolios more defensively," Wright said.

Wright said there has been evidence that investors are increasing their holdings in cash in order to re-enter the market when the volatility normalises.

"Many investment managers are reweighting portfolios more defensively to cash, there is also evidence of some selectively increasing equity exposure in some portfolios after being underweight for a considerable period, whist waiting for more attractive valuations," he said.

"Also, we have some investment managers benefitting from stop losses within their portfolios so that exposure to growth assets was reduced early in the market downturn in favour of cash."

The benefit of higher cash holdings may potentially be further highlighted where corporates are required to recapitalise in the current environment, Wright said.

"Where risk profiles have not changed, rebalancing may still be required," he said

"However, timing of this will be conditional on the views of the investment managers."

Wright said in discussions he has had with investment managers, it would seem those who deal with more diversified portfolios have been able to perform well given the current environment.

"Some who manage diversified portfolios have been taking profits in the fixed interest sector after years of gains with the view to increasing their exposure to growth assets when there is greater visibility around market and price stability and also around earnings," Wright said.

Wright said managed discretionary accounts (MDAs), as well as separately managed accounts (SMAs) have reaffirmed their status as an efficient structure to support advisers and investment managers handle their clients' wealth confidently.

"The ability to transact quickly and efficiently during volatile market conditions is critical," Wright said.

"Without the time-consuming need of contacting all clients ahead of executing on trades has allowed portfolios, where appropriate, to rapidly adjust to market conditions."

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