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Global Wealth 2014: Riding a Wave of Growth

Global private financial wealth grew by 14.6 percent in 2013 to reach a total of $152.0 trillion, according to The Boston Consulting Group. (See Exhibit 1.) The rise was stronger than in 2012, when global wealth grew by 8.7 percent. The key drivers, for the second consecutive year, were the performance of equity markets and the creation of new wealth in RDEs.

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The growth of private wealth accelerated across most regions in 2013, although it again varied widely by market. As in 2012, the Asia-Pacific region (excluding Japan) represented the fastest-growing region worldwide, continuing the trend of high growth in the “new world.” But substantial double-digit increases in private wealth were also witnessed in the traditional, mature economies of the “old world,” particularly in North America. Double-digit growth was also seen in Eastern Europe, the Middle East and Africa (MEA), and Latin America. Western Europe and Japan lagged behind with growth rates in the middle single digits.

As in previous years, North America (at $50.3 trillion) and Western Europe ($37.9 trillion) remained the wealthiest regions in the world, followed closely by Asia-Pacific (excluding Japan) at $37.0 trillion. Asia-Pacific, which in 2008 had 50 percent less private wealth than North America, has since closed that gap by half. Globally, the amount of wealth held privately rose by $19.3 trillion in 2013, nearly twice the increase of $10.7 trillion seen in 2012.

In nearly all countries, the growth of private wealth was driven by the strong rebound in equity markets that began in the second half of 2012. All major stock indexes rose in 2013, notably the S&P 500 (17.9 percent), the Nikkei 225 (56.7 percent), and the Euro Stoxx 50 (14.7 percent). This performance was spurred by relative economic stability in Europe and the U.S. and signs of recovery in some European countries, such as Ireland, Spain, and Portugal. A further factor, despite the tapering of quantitative easing in the U.S., was generally supportive monetary policy by central banks. In an exception, the MSCI Emerging Markets Index fell by 5 percent.

Globally, the growth of private wealth was driven primarily by returns on existing assets. The amount of wealth held in equities grew by 28.0 percent, with increases in bonds (4.1 percent) and cash and deposits (8.8 percent) lagging behind considerably. As a result, asset allocation shifted significantly toward a higher share of equities. Currency developments were more relevant to private wealth growth in 2013 than in 2012. Driven by the slowdown in quantitative easing, the U.S. dollar gained value against many currencies, particularly those in emerging markets, as well as against the Japanese yen.

As in previous years, strong growth in gross domestic product (GDP) in RDEs was an important driver of wealth. The BRIC countries, overall, achieved average nominal GDP growth of nearly 10 percent in 2013.

Looking ahead, global private wealth is projected to post a compound annual growth rate (CAGR) of 5.4 percent over the next five years to reach an estimated $198.2 trillion by the end of 2018. The Asia-Pacific region and its new wealth will account for about half of the total growth. Continued strong GDP growth and high savings rates in RDEs will be key drivers of the rise in global wealth.

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Assuming constant consumption and savings rates, North America will fall to a position as the second-largest wealth market in 2018 (a projected $59.1 trillion), being overtaken by Asia-Pacific (excluding Japan) with a projected $61.0 trillion. Western Europe should follow with a projected $44.6 trillion.

Millionaires

As the debate over the global polarization of wealth rages on, one thing is certain: more people are becoming wealthy. The total number of millionaire households (in U.S. dollar terms) reached 16.3 million in 2013, up strongly from 13.7 million in 2012 and representing 1.1 percent of all households globally. The U.S. had the highest number of millionaire households (7.1 million), as well as the highest number of new millionaires (1.1 million). Robust wealth creation in China was reflected by its rise in millionaire households from 1.5 million in 2012 to 2.4 million in 2013, surpassing Japan. Indeed, the number of millionaire households in Japan fell from 1.5 million to 1.2 million, driven by the 15 percent fall in the yen against the dollar.

The highest density of millionaire households was in Qatar (175 out of every 1,000 households), followed by Switzerland (127) and Singapore (100). The U.S. had the largest number of billionaires, but the highest density of billionaire households was in Hong Kong (15.3 per million), followed by Switzerland (8.5 per million).

Wealth held by all segments above $1 million is projected to grow by at least 7.7 percent per year through 2018, compared with an average of 3.7 percent per year in segments below $1 million. Ultra-high-net-worth (UHNW) households, those with $100 million or more, held $8.4 trillion in wealth in 2013 (5.5 percent of the global total), an increase of 19.7 percent over 2012. At an expected CAGR of 9.1 percent over the next five years, UHNW households are projected to hold $13.0 trillion in wealth (6.5 percent of the total) by the end of 2018.

Wealth managers must develop winning client-acquisition strategies and differentiated, segment-specific value propositions in order to succeed with HNW and UHNW clients and meet their ever-increasing needs.

Regional Variation

Strong equity markets helped countries in the old world, which have large existing asset bases, to match the rapid growth in assets in the new world, which relies more on new wealth creation spurred by GDP growth and high savings rates. For example, private wealth grew by double digits in the U.S. and Australia, while some emerging markets, such as Brazil, showed substantially weaker growth. China will continue to consolidate its position as the second-wealthiest nation, after the U.S.

In North America, private wealth in North America rose by 15.6 percent in 2013 to $50.3 trillion, driven by the strong growth of wealth held in equities and moderate nominal GDP growth of 3.5 percent. Wealth grew by 16.3 percent in the U.S., while growth in Canada was considerably slower at 8.4 percent owing to weaker stock-market returns and a lower share of directly held equities.

In Western Europe, private wealth in Western Europe rose by 5.2 percent to $37.9 trillion in 2013, the subpar performance partly reflecting low GDP growth. The amount of wealth held in equities rose by 17.1 percent, compared with 2.3 percent for cash and deposits and a decline of 3.1 percent in bonds.

In Asia-Pacific (excluding Japan), private wealth in Asia-Pacific (excluding Japan) rose by 30.5 percent to $37.0 trillion in 2013. Strong nominal GDP growth in both China (9.6 percent) and India (14.2 percent), as well as high savings rates in those countries—16.8 percent and 19.2 percent of GDP, respectively—were the principal drivers. The amount of wealth held in equities gained 48.0 percent, compared with 30.4 percent for bonds and 21.3 percent for cash and deposits.

In Latin America, at constant exchange rates, private wealth in Latin America continued to achieve double-digit growth in 2013, rising by 11.1 percent to $3.9 trillion. However, taking into account the currency devaluations in many Latin American countries—such as Brazil (down 13 percent), Argentina (down 37 percent), and Chile (down 9 percent)—private wealth in the region declined in 2013. Below-average growth was observed in the larger countries in the region. Private wealth rose by 10.7 percent in Mexico and 5.6 percent in Brazil (where it was up 14.1 percent in 2012), driven by a weakening of local bond and stock markets. Regionwide, riding developments in other regions, the amount of private wealth held in equities rose strongly by 19.6 percent, compared with 9.4 percent for bonds and 10.4 percent for cash and deposits. There were significant differences between the changes in onshore wealth (up 7.1 percent) and offshore wealth (up 23.5 percent)—attributable mainly to net inflows from countries such as Argentina and Venezuela and attractive returns from offshore investments. With a projected CAGR of 8.8 percent, private wealth in Latin America will reach an estimated $5.9 trillion by the end of 2018.

Private Sector Demand for Bank Credit in the Emerging Markets to Grow 45% by 2018

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Three Worries for 2014, and They’re All About Credit

Emerging markets have been the principal driver of global growth in the last five years and are expected to continue growing at twice the rate of developed markets. As a result, banks in emerging markets expect improved financial performance, despite facing challenges of rising costs, intensifying competition and tougher regulatory burdens, finds a new EY report, Banking in emerging markets: Investing for success.

The report is based on a survey of more than 50 leading financial services institutions and over 9,000 retail banking customers in emerging markets. The report identifies three challenges for banks looking to emerging markets as a growth opportunity:

Tougher regulation: Regulators in the emerging markets are moving to catch up with, or in some cases get ahead of, regulators in developed markets. Eighty-two percent of survey respondents in established markets, 81% in transitional markets and 66% in frontier markets expect the volume of regulation their banks face to increase in the next 12 months.
Increasing costs: The average operating expense for 50 leading emerging market banks has risen 81% in last four years from US$3.6b in 2009 to US$6.5b in 2013, driven by increased funding, labor and investment costs.
Intensifying competition: New entrants to the market, including foreign banks and non-banks, are intensifying levels of competition. Seventy-one percent of customers in the markets we surveyed now have relationships with multiple banking providers. And 79% of this year’s respondents said they were experiencing competition for deposits as an industry challenge, compared to 65% last year.

Jan Bellens, EY’s Global Banking & Capital Markets Emerging Markets Leader, says:“Success in these emerging markets is not straightforward, but there is great potential for those banks that get it right. In order to be successful in the long-term, banks must focus on designing the right business model and developing strong execution capabilities – learning and adapting from what banks have done well and not-so-well in both developed and other emerging countries.”

To overcome the challenges successfully, banks must think beyond immediate fixes and plan to invest in the following three areas:

Investing in technology: EY estimates that bank credit to the private sector in the 11 markets studied will grow from around US$3.5t in 2013 to US$5.1t in 2018, triggering a need for significant investment in technology across emerging markets. Banks must invest in IT to provide new, low-cost ways to reach customers in markets with limited infrastructure, better assess credit risks, build enduring customer relationships and improve operations.
Investing in people: Despite the growing cost pressure, the war on (capable) talent in the emerging markets continues, with 44% of bankers expecting headcount to grow, especially in business lines that are experiencing especially high-growth or involve more intensive levels of customer service, such as premium and private banking. With banks needing to invest in both the front and the back office, employee-led innovation and efficiency programs are key to delivering new services profitably.
Building partnerships: Banks can plug skills and capacity gaps through collaboration with companies in other industries such as telecoms and technology, as well as other financial institutions. This will be essential for banks looking to expand rapidly into new markets, products and services.

The report focuses on 11 rapid growth markets defined as being at either a frontier, established or transitional stage of maturity. The report defines the three stages of maturity as:

Frontier: Per capita GDP below US$2,000, the point at which deposit and savings products appear. Nascent capital markets with depth under 50% of GDP. (Kenya, Nigeria, Vietnam)
Transitional: These markets lie between the other two groups. At least 30% of the population typically has bank accounts and the capital markets are further developed. (Colombia, Egypt, Indonesia)
Established: These markets have exceeded US$8,000 per capita GDP, the point at which credit products become established. Capital market depth of over 125% of GDP. (Chile, Malaysia, Mexico, Turkey, South Africa)

Each market presents its own unique challenges, but there are specific areas that international, regional and domestic banks can address now through strategic investments. According to Steven Lewis, Lead Global Banking Analyst at EY: “Domestic banks in these markets are already starting to strengthen risk management and improve capital and business efficiency, which will underpin profitable growth. However, if they want to keep pace with the growth of their customers, as businesses expand overseas and personal wealth in these markets increases, they will need to find ways to overcome skill and capability gaps or risk losing these customers to larger global players.”

Scout Investments Launches UCITS Umbrella to Expand Global Distribution

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Scout Investments recently launched a UCITS fund umbrella structure to further expand distribution of its strategies to non-U.S. investors.

The UCITS Fund will mirror Scout’s Unconstrained Bond Strategy and is currently registered in Luxembourg and Singapore, with plans to expand distribution into additional countries.

The Strategy is managed by lead portfolio manager Mark Egan and a seasoned team of fixed income investment professionals, including Tom Fink, Todd Thompson and Steve Vincent. The team has managed unconstrained fixed income accounts for more than 16 years and was among the first in the industry to do so.

“The cross-border distribution of Scout’s Unconstrained Bond Strategy allows us to offer non-U.S. investors a fixed income portfolio diversifier with a proven track record,” said Andy Iseman, chief executive officer of Scout Investments. “We plan to offer additional funds via the UCITS fund umbrella structure to continue to expand our global footprint.”

The objective of the strategy is to maximize total return consistent with the preservation of capital. Scout’s Unconstrained Bond Strategy seeks to maximize total return by systematically identifying and evaluating relative value opportunities throughout all sectors of the fixed income market.

The team may use derivative instruments, such as futures, options and credit default swaps, to manage risk and gain exposure. Given its objective, the strategy is not managed against a benchmark.

A UCITS (Undertakings for Collective Investment in Transferable Securities) is an investment vehicle that enables fund managers to distribute their products to non-U.S. investors.

Scout Investments, a global asset manager headquartered in Kansas City, Mo., manages more than $32 billion in equity and fixed income investment strategies for institutions and individual investors. Scout is the investment subsidiary of UMB Financial Corporation.

The Midas Touch: Wealth Preservation and the World’s High-Net-Worth Investors

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The priorities for a high-net-worth individual (HNWI) are: protecting their wealth in order to afford a comparable lifestyle throughout their retirement, actively growing their assets to support the needs of their families, and leaving an adequate estate to their loved ones.

In this issue of The Cerulli Edge-Global Edition, they focus on the high-net-worth market, including the main drivers of growth in demand for funds in the Gulf Co-operation Council (GCC) countries, the most effective points of entry to tap into Latin America’s wealthy, and an examination of the wealth erosion that takes place in American high-net-worth families.

Regarding to Latam, the study concludes that Latin America’s private wealth sector presents a golden opportunity for global asset managers who want to tap into the region. Economic growth and unprecedented wealth accumulation has prompted an increasing number of HNWIs to examine how they are able to preserve and enhance their assets.

At the last count, there were 1,587 billionaires in the world with a total net worth of US$6.5 trillion (€4.8 trillion). John D. Rockefeller is widely acknowledged to have been the first, achieving that status in 1916. The United States currently tops the leaderboard with 492 billionaires, but it has taken almost a century to get to this point. China, which had no dollar billionaires as recently as 2002, already has 152, and is second on the list, and Russia, which only freed itself from the shackles of communism in 1991, is third with 111.

That wealth is also spreading, with new billionaires in Algeria, Lithuania, Tanzania, and Uganda. London boats the greatest number of billionaires of any city with 72, (although only one-third were actually born British), followed by Moscow with 48, and New York with 43.

Making it onto this elite list is, however, no guarantee of future prosperity. Eike Batista is a case in point. In 2012, the Brazilian was the world’s seventh richest man with an estimated worth of US$30 billion. But in less than two years, a series of poor investment decisions has seen that pile almost disappear-and he now has to make do on less than US$300 million.

“The wealthy have something in common, and it isn’t just money. Worldwide, 95% of wealth creators and 91% of wealth inheritors are married. So the best providers don’t service high-net-worth individuals, they service HNW families.” says Barbara Wall, Europe research editor at Cerulli Associates. “To service these families, Cerulli has identified six key factors that providers should pay careful attention to.”

“Wealth preservation might not be the most pressing problem facing this elite,” notes Cerulli senior analyst Angelos Gousios. “However, they would do well to heed the advice of an ancient Chinese proverb-‘Wealth does not pass three generations’- because it is just as relevant today as it was then.”

Matthews Asia Demystifies China Through “Sinology”, its New Series of Reports

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Matthews Asia published last week its inaugural issue of Sinology, a publication designed to provide investors with a framework for understanding the Chinese economy and its impact on the global economy. The focus will be on longer-term trends, to help put in context the daily flood of China news. It begins with the first in a series of ‘demystifying China’ reports, to address some of the major misconceptions about the structure of Chinese economy.

According to Andy Rothman, author of the publication, the most fundamental misunderstanding about the Chinese economy is that it is dominated by state-controlled companies. The truth is that most Chinese work for small, private firms.

Private firms account for 82% of urban employment, as well as about 70% of investment and industrial sales.

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The Communist Party still controls the financial system and many capital-intensive sectors, but most economic growth comes from entrepreneurial, small private companies, just like in the U.S. and Europe.

Misunderstanding these trends leads to understating the important role of Chinese entrepreneurs, who are the most dynamic part of the economy and drive its growth.

The Communist Party has shrunk significantly the number of SOEs and reduced the number of sectors where they operate, while scaling up the size of the remaining state firms and limiting competition in those sectors from private and foreign-owned companies. While the Party still plays an outsized role, especially through its control of the financial system, it has turned over most of the economy to Chinese entrepreneurs.

You may access the full report through this link

Schroders Portfolio Solutions Expands in North America

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Schroders announced the appointment of Seth Finkelstein to the newly created role of US Product Manager, Portfolio Solutions within its Multi-Asset and Portfolio Solutions business (MAPS). Seth, who joins today, will be based in Schroders’ New York office and will report to Adam Farstrup, US Product Manager, Multi-Asset.

Seth has spent over 7 years at ING Investment Management where he co-founded the Multi-Asset Strategies & Solutions Group (MASS). He held the title of Senior Vice President & Client Portfolio Manager. Prior experience includes senior positions at Seneca Capital Management, Cohen & Steers and J.P. Morgan Investment Management.

Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions: “In line with our strategy to build out our Multi-Asset and Portfolio Solutions capabilities in North America, we are pleased that Seth has joined us to take up this Portfolio Solutions role. Seth has strong skills in both multi-asset strategy and solution design, which is very exciting for us as we take another step in building our business in North America.”

Improved Growth or Not?

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¿Mejora el crecimiento o no? — Foto cedidaMaarten-Jan Bakkum from ING IM. Improved Growth or Not?

Since March, emerging stock markets have risen by 10%. This rally might indicate an improved growth outlook, and is strong enough for us to re-examine our cautious growth scenario for emerging markets. The average growth level is currently some 5%, slightly more than half the growth in 2010. In our scenario, economic growth in the emerging world will decline further to 4% by the beginning of 2015. The growth slowdown is primarily caused by three factors: the deterioration of the investment climate and competitive position of most emerging economies, the gradual normalisation of monetary policy in the developed world, and the ongoing growth slowdown in China.

The strength of the emerging stock markets over the past few months can be explained by an improvement – or at least the perception of an improvement – in the first two factors, despite the deterioration of the Chinese growth outlook.

The growth potential for most emerging markets has fallen considerably over the past few years, due to a sharp rise in wages and real exchange rates, a greater government role in the economy and an increase in the tax and regulation pressure. Hence the clear deterioration in the competitive position and the investment climate. This negative development has been most clearly visible in Brazil and India. It is the success of the Chinese growth model that has put policymakers on the wrong track. A recovery of growth potential now requires an extensive policy correction, far removed from the interventionist model.

In recent months, there has been growing hope amongst investors that this year’s elections in India, Indonesia and Brazil will be won by pro-reform parties. That would break the negative policy trend in the emerging world and boost the growth outlook. So far, this optimism has only been confirmed by a positive election result in India. For the other two countries, investors are still hoping. It is therefore too soon to assume a new, positive policy trend in the emerging world.

The US has started normalising its monetary policy. Given the reasonable US growth figures, we can assume that the tapering will continue and interest rate increases will start sometime next year. This should exert continuing pressure on capital flows to the emerging world. Nevertheless, there has been a clear revival in the EM carry trade over the past few months. This is primarily due to growing expectations that the European central bank will further relax monetary policy. At this stage, expectations of further steps by the ECB would appear somewhat exaggerated. Capital flows to the emerging world remain vulnerable.

And then there is China. The growth slowdown is continuing. The most recent figures for the Chinese housing market indicate a strong correction. This is exerting further pressure on economic growth and increases the risk of a system crisis. All in all, the prospects for the Chinese economy are starting to look increasingly gloomy. In view of the great importance of Chinese demand for the entire emerging world, this remains the most important reason for not being too enthusiastic about the recent rally in emerging stock markets.

Maarten-Jan Bakkum, ING IM

Rare Strategic Metals – a New Opportunity for Investors

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In times where all major currencies are continuously losing purchasing power, where the perceived inflation rate is much higher than officially published and where interest rates are below inflation rates, many investors are looking for opportunities to protect and preserve their wealth.

Sure, in the past a good mix of bonds, stocks, real estate and cash had been the answer. But is this strategy still successful today? And can it protect your wealth in the future? If we take a closer look at the global markets, we will find that the yield of AAA bonds is approximately zero, the future of the Euro and the Dollar continues to be highly unpredictable and speculation in established markets like top tier real estate or major stock indices has reached its climax. So, where should investors put their money to diversify risk, maintain wealth and receive solid returns?

A part of the solution could be found in a ‘new’ asset class: Rare Strategic Metals. New because until recently these specialty metals were only accessible to the industry and were solely traded in metric tons. Until today, these metals are not traded on stock exchanges and there is no future or certificate market. However, a handful of companies have begun to offer private and institutional investors access to this market by buying, storing and reselling these metals in lower quantities for their customers.

But what are Rare Strategic Metals and why are they so special?

Metals are considered the mother of all material property. Rare strategic metals in particular are absolutely indispensable to technology and manufacturing today and in the future – which is what gives them their high value. Going mostly unnoticed, few people understand how different our lives would be without these metals. Just try to imagine a world without transportation, computers, cell phones, or even the clothing you are currently wearing, to name just a few examples. National Geographic in June 2011 called them “the secret ingredients of almost everything”, the European Commission and the U.S. Government have already warned several times about the imminent shortages of supply and their critical impact on modern high technology industries.

Already experiencing a rise in prices and supply shortfalls to meet production demands, the continued growth of emerging economic powers such as the BRIC countries is straining the supply of these crucial metals even more. As a result, prices of several rare strategic metals have already risen 50 to 80 percent in recent years.

Market scarcity, supply shortages, and the current turmoil in global financial markets will inevitably cause a further spike in metal prices. History has repeatedly shown that possession of physical metals has led people to prosperity and security over generations. This will not change in the future.

Christian Buescher is Executive Director within the Swiss Metal Group, responsible for developing the Latin American markets.

GAM Acquires Specialist US Mortgage-Backed Securities Business Singleterry Mansley

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The principals of Singleterry Mansley Asset Management – Gary Singleterry and Tom Mansley – have entered into an agreement under which they and their investment team will join GAM. Singleterry Mansley Asset Management was founded in 2002 and specialises in the evaluation and selection of complex mortgage and asset-backed securities based on analysis of macroeconomics, yield curves and underlying collateral structures.  

The acquisition, structured as an asset purchase, is expected to close in June 2014. Subject to client consent, all of the company’s assets under management (USD 397 million as at 30 April 2014) and its client relationships will be transferred to GAM.  

Singleterry Mansley has been managing mandates for institutions for 12 years. The team has built a strong track record of absolute and relative outperformance through a number of market, interest rate and credit cycles, including the crisis in the US housing and financial markets in 2007/2008 where they outperformed through anticipating movements in yield curve and credit risk, and then capitalised on opportunities after the crisis. Their flagship managed account – which uses no leverage – generated net annualised returns of 13.7% from inception in October 2002 to 30 April 2014, with positive returns in every calendar year.  

At a size of around USD 7 trillion, the US mortgage-backed securities market remains one of the largest, most liquid and diverse sectors in global fixed income. The market’s complexity and depth plays to the strengths of experienced active managers who are skilled in understanding, controlling and profiting from a broad spectrum of risks.  Singleterry Mansley invests in collateralised mortgage obligations (CMOs) guaranteed by government agencies, as well as in non-agency debt. Asset allocation and portfolio construction is driven by an analysis of interest rate, credit and prepayment risk and focuses on strong yield generation, liquidity and downside protection during sell-offs – an approach, which helped them to avoid exposures to sub-prime loans during the crisis.  

For GAM Holding AG, this move represents an extension of its leading alternative and specialist fixed income capabilities. It will add a sought-after and distinct new specialist skillset to the Group’s USD 17 billion unconstrained/absolute return bond strategy and bring the total number of investment professionals supporting this strategy to 21.  Singleterry Mansley’s offshore fund, launched in 2009, will be distributed under the GAM brand. In addition, in the coming quarter the Group plans to launch a new dedicated GAM- branded UCITS fund based on the same unlevered strategy the team has been managing since 2002. Gary Singleterry and Tom Mansley and their team will be based in New York, where GAM has had an office since 1989.

David M. Solo, Group CEO of GAM Holding AG, said: “Gary Singleterry and Tom Mansley are experienced and successful investors – their ability to navigate the severe market stress in 2007/2008 and produce strong positive returns speaks for itself. In particular, they share our Group’s commitment to a disciplined investment process based on deep analysis, combined with unconventional thinking. I look forward to having them on board and am convinced their skillset will be a tremendous addition to our current offering, allowing us to grow our asset base in line with our strategy.”

Gary Singleterry said: “We are very excited about joining GAM: Its global distribution network and its operational and compliance infrastructure will allow us to expand our reach into new markets and client segments. In particular, it will be great for us to work closely with GAM’s outstanding fixed income team and contribute to the future development and continued success of their unconstrained global bond strategy.”

Tom Mansley said: “The US market for mortgage-backed securities has been in a slow recovery mode over the past six years. Housing prices have improved, but remain affordable and mortgage underwriting standards became much stricter. The dominance of government- guaranteed issuance allows us to invest in a diverse universe of structured securities, and while private residential mortgage-backed securities issuance remains subdued, the secondary market for non-agency debt is highly attractive. Overall, this asset class offers interesting return opportunities and we look forward to making them accessible to a new and broader set of investors around the world.”

Investing and the Beautiful Game

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Whether you call it soccer or football, the “beautiful game” can be a great analogy for long-term investing. With all eyes glued to this summer’s tournament in Brazil, let’s take a look at how investing may have more in common with the world’s most popular sport than you might realize.

For instance, take a scenario where one team scores a goal and is winning 1 – 0 early in the first half. If you were the coach of that team, would you instruct your players to drop back and play defense to protect the lead?

It would probably be a little too early to employ that strategy in the first half, knowing that you would face constant pressure from the opposing team for the remainder of the game.

Instead, you would likely continue to play your style of game; you would continue to attack in order to keep the opposing team off-balance and increase your chances of winning.

Well, the same concept holds true for investing. In the scenario above, dropping back and playing defense with so much time left in the game might translate into investing heavily in fixed income.

You may be tempted to play it safe, with fixed-income investments, but with interest rates at historical lows, this may not be the best way to go. Depending on your financial situation, you and your financial advisor may want to consider allocating some of your investments into equities to create a balanced mix of asset classes that may help you manage risk and reduce the overall volatility in your portfolio. This could provide you with the offense you need to ensure that you are still in the game, so to speak.

Naturally, your coaching strategy may evolve as the match progresses, to keep up with the ebb and flow of the game. Protecting a 1 – 0 lead in the first half is much different than protecting a 1 – 0 lead with five minutes left to play. The same holds true for investing.

Your financial advisor will take your financial goals, time horizon, and risk tolerance into account and determine how best to diversify among stocks, bonds, and money market securities to develop a sound asset allocation plan.

Please keep in mind that no investment strategy can guarantee a profit or protect against a loss. Also keep in mind that all investments carry a certain amount of risk, including the possible loss of the principal amount invested.

Opinion column by Victor M. Mendez, Marketing Manager, Global Retail Marketing at MFS