A few days ago, *Expansión* published a revealing article: «How to make the most of 30,000 euros in the midst of a crisis», featuring charts in print form, which compared the strategies recommended by eight investment firms for achieving «profitable, low-risk portfolios», as the article stated verbatim. The firms were as follows: Inversis, Dexia, Atlas Capital, Tressis, Banif, Abante, Unicorp Heritage y Lloyds TSB Spain.
What is clear is that these eight organisations have merely prescribed a media-driven, non-therapeutic ‘remedy’ for all readers of the article in question, without giving a thought to anything else. But the worst thing is that most readers will eagerly devour their advice without even considering half the issues we have raised, let alone, of course, bothering to check whether the advice they read last year was actually sound. And if we do not learn from our mistakes, we will never shake them off or improve.
Nevertheless, let us set aside the errors in the fundamental approach and move on to analysing the guidelines provided by these organisations. The first thing that strikes us is that they all recommend investing between 30 and 42% in the stock market, with the exception of Banif, which does not specify percentages (sic), and Atlas Capital, which proposes a 20% allocation to the stock market and whose proposal we consider to be the most distinct, as we shall see later. It is also worth noting that the majority advise investing in US$ as well; some propose US equities on the grounds that they are likely to recover sooner than Europe, whilst others suggest investment-grade corporate bonds – criteria with which we agree. However, others, such as Atlas Capital once again, even propose investing in a pure and simple money market fund for $, in a clear bet on the recovery of the US dollar (although of dubious efficiency, given that other investments in USD could capitalise on the currency factor and achieve better returns over the specified 12-month period). Furthermore, this latter firm is the only one to include a 5% allocation within the proposed portfolio in Japanese interest rates, via the fund Invesco Japanese.
Another noteworthy point is that all of them, with the exception of Lloyds TSB Spain, recommend investing at least 14% in alternative investment strategies. These investments, as we have already mentioned in other articles, are unclassifiable for various reasons. And high volatility (and fees) do not always align with the portfolio’s needs. However, it must be said that in a flat or bearish equity market scenario, with fixed income in serious trouble, certain types of so-called alternative investment strategies may be a good option – but never indiscriminately, as proposed, for example, by Banif, which would invest the largest percentage of the portfolio (once again, without specifying) in this type of investment.
It is also worth noting that the majority would remain «in liquid assets» with percentages ranging from 30 to 45%, whether in money market funds or bonds, although the liquidity of the latter leaves much to be desired. Here we see two clear exceptions: Banif, which proposes fixed-income investments with a maturity of 1.66 years – again without specifying percentages – with yields below 5% (excluding trading and custody fees); and, at the other end of the spectrum, Atlas Capital once again, which proposes allocating 50% of the portfolio to one-year term deposits with rates above 5%.
Without exception, they all blatantly put their own interests first. Some, such as Atlas Capital, have 20% of their portfolio invested in their own stock market fund, whilst others take a much cruder approach, such as Dexia, where the only euros it allows to escape from the purchase of its funds are the 5% it proposes to leave in liquid assets; or Banif, which recommends its full arsenal of products and hefty fees for nothing less than alternative fund management.
In short, if you take a look at the article in *Expansión*, you’ll see how all the proposals seem to be taken straight from their promotional leaflets, perhaps with the exception of Atlas Capital’s proposal, which tones down its sales pitch, although even this one falls back on the most unappealing clichés of model portfolios (conservative, mixed, dynamic) as soon as you visit their website. All things considered, I fear that the offers from all of them would vary little, whatever the initial investor profile might be.
Only time will tell whether a proposal will prove to be the right one or not in 12 months’ time. However, it has not been clarified whether we are talking about safeguarding an asset or growing 30,000 euros, nor anything mentioned in a PGR. Therefore, these eight proposals are little more than empty talk, a chance to appear in a publicity photo and be among the eight published with messages designed to flatter the ears of their potential victims. It is obvious that the organisations consulted have confined themselves to the question of how to make the most OF our €30,000 rather than how to make the most AT our €30,000. Our colleague Sherpa has already addressed the issue of the money that isn’t strictly working for us.
The truth is that, given the prevailing uncertainty and the outlook, European equities do not look particularly promising in our view. The US market looks more promising, but perhaps not for another 12 months, if that is our investment horizon. However, looking further ahead, economic prospects in the US appear more attractive. Not only in terms of equities, but also in Prime property and even non-financial corporate RF. The slogan wait and see We believe it would be prudent to create a asset allocation to safeguard one’s assets without rushing, and to this end, keeping funds in deposits for a few months and making a sound selection of fixed-income investments may be the right approach. Beyond mere protection, certain alternative investment strategies should have their place, but only if we know what we are going to do with our money and what levels of volatility we are prepared to accept. One of our current problems is that this catch-all category encompasses everything, including the desperate and blind need to recoup the expectations that equities have failed to meet in recent months. If, on top of that, we diversify into alternative investments indiscriminately, finding out what is being done with our money will be like looking for a needle in a haystack. Given the current uncertainty, it seems as though alternative investment is going to solve all our portfolio’s problems, and allocating a quarter of our assets to an unknown universe is frankly imprudent.
Most investment firms they’ll know how to make the most of it for our money, but we might not even get to try it, and yet our assets will be squeezed dry.
«Poor man… He’ll never know what it’s like to be young, because he was born a banker.»
Mayer Amschel Rothschild (1744-1812)