CAUTIOUS PORTFOLIOS Less United States and more diversification. This is the suggestion to investors from Marco Galli of Mg Advisory. 10% in Treasuries Galli agrees that Treasuries have always been a fundamental component of the bond portfolio, because they are considered safe havens, thanks to the creditworthiness of the United States. However, recent announcements by the US administration regarding the federal budget and trade policy undermine their international credibility and there are fears that they could fuel rising inflation and interest rates and make it difficult to finance public debt. In addition, the confrontational approach, rather than cooperation with other countries, adds confusion. “Considering,” says Galli, “that from a portfolio perspective the bond component mainly serves a stabilizing function, in the current context I would limit the weight of Treasuries to a maximum of 10% and prefer short durations (1-3 years), in favor of less volatile instruments that are better suited to perform this function.” Less tech and more utilities For the equity part of the portfolio, Galli’s suggestion for facing an unknown scenario is diversification: “I would reduce the concentration in US stocks, keeping them at 40-45% of the portfolio (compared to 71% of the MSCI World index). At the same time, I would increase exposure to Europe and emerging countries, which have more attractive valuations.” An economic slowdown would especially penalize stocks with valuations justified only if earnings growth remains robust and continuous. “I would decrease,” continues Galli, “the weight of these stocks and, in general, of the sectors most vulnerable to tariffs and trade tensions, such as discretionary consumption, autos, luxury, and high-valuation technology. Instead, I would favor more defensive sectors, such as consumer staples, infrastructure, and utilities, particularly companies with significant and stable profits and cash flows.” The times of the dollar The choice to be exposed to dollar fluctuations depends on the objectives and timing of the investment: “From a long-term perspective,” concludes Galli, “dollar weakness may not be a problem. If the investment in dollars is to finance a future expense in a different currency, it is appropriate to hedge the exchange rate risk, to ensure coverage, always considering the cost. If, on the other hand, the investment is included in a portfolio with a long-term growth objective, hedging the exchange rate risk is not necessary, in light of long-term exchange rate fluctuations and the cost of the operation.” © ALL RIGHTS RESERVED
Beyond Wall Street towards Euro and Emerging Markets