Your Money: What to do amid political disarray

Posted: October 10, 2013

Local investment firms have been taking frantic calls from clients lately asking whether the sky is falling. And no wonder: The U.S. debt ceiling has yet to be lifted, threatening default on government bonds; Congress failed to act to end a government shutdown, which has stretched into its second week; and yet stocks have been on a tear not seen in decades.

Most are advising investors to stay the course - and in truth, there's very little to do other than to panic, sell everything, and go to cash.

Jason Pride, director of investment strategy at Glenmede in Philadelphia, says the firm is allocating to bank loans, emerging market debt, and emerging market equities with a focus on consumer growth in those countries.

Sage Financial Group in West Conshohocken has been advising clients to separate the emotion of politics from their investment portfolios. "Despite the possibility of a default or nervous selling that could occur in fear of one," the firm wrote to clients this week, "we do not believe that it is necessary to make any radical portfolio changes, like selling all assets and going to cash."

Initial claims filed for unemployment benefits have been generally dropping to their lowest level since 2007. Year-over-year unemployment data and stock prices move in the opposite direction 87 percent of the time, Sage noted, so if one is going down, the other is typically going up. Ergo: Unemployment claims are falling, stocks should continue rising.

Whither stock and bond returns amid all the uncertainty?

BlackRock's Sami Mesrour, a member of the asset-allocation fixed-income-portfolio management team, predicted Tuesday that the rate on 10-year Treasuries eventually would settle at 3.5 percent, up from the current 3 percent. The benchmark 10-year U.S. Treasury interest rate rose dramatically since midyear - 1.35 percentage points from May to September.

A new entrant to the local advisory scene, Palladiem in Malvern, estimates stocks should return 5 percent to 6 percent annually and 3 percent to 4 percent for bonds, a realistic target after a 30-year bull market in fixed-income. In its global alternative portfolio, Palladiem is sticking with picks such as Invesco Asia Pacific Growth fund (ASIAX), Powershares Senior Loan Portfolio (BKLN), and SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR). The firm also holds a small allocation in iShares Gold Trust (IAU) as a hedge and diversifier.


erinarvedlund@yahoo.com

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