Five tips for protecting your portfolio before vacation season

The stock markets are in good health in the run up to the summer season, although risks are not only still present but on the rise, particularly at the geopolitical level. The past week, for example, has been marked by political developments on both sides of the Atlantic: in Europe, with France making headline news, and in the United States, in the form of the first presidential debate. However, as pointed out in a recent report by MAPFRE Economics, MAPFRE's research arm, these are not the only risks we face, as others include the possible global economic slowdown, uncertainty in monetary and fiscal policy and moderate but persistent inflation.

Despite this, the MSCI World, a global equity index, has accumulated gains of 10.81% during the year; while the S&P 500 has seen gains of 14.48% and the Euro Stoxx 50, the benchmark in Europe, is up by 8.24%.

Even so, with the summer season fast approaching, many families are already planning their vacations and the last thing they want is a scare in their investment portfolio. In view of these circumstances, the following points should be considered:

• Based on how the Equity markets have fared, we could say that we are coming into summer in a fairly positive way (ideal for getting some rest). As indicated above, all global benchmark indexes are positive, many of them having experienced double-digit increases.

• The profit forecasts for the rest of the year remain on the rise (one more reason to enjoy the summer).

• If there's one particular risk that could cut into our peace of mind, it's concentration risk. The S&P500 saw gains of 15% through June, although the median gains of its components only came to 3%. In other words, depending on the concentration risk you’ve assumed, you’ll have more or less peace of mind at the beach.

• We all know that the sun heats up in the summer, so we need to protect ourselves: we continue relying on fixed income as a "protective balm." Putting on sunscreen can be a pain, but we need it to avoid overexposure to the sun's most intense rays (variable income).

• To get a good tan, you have to stay out longer in the sun. The same goes for fixed income. So far this year, it hasn't delivered the expected results, but its long-term benefits will be appreciated, much like using sunscreen.

• However, we can’t overlook the short term (we all want a good tan by September), and here, we have great accelerators such as cash plus funds that offer profitability and protection in equal measure.

• If you decide to spend the summer abroad, there are risks to consider: elections in France, the United Kingdom, the United States and geopolitical tensions in Ukraine, the Middle East, etc. However, we shouldn’t let these issues determine our preferred destination

• Some very attractive exotic destinations are not to everyone's taste (Asia). That's why it’s important to always have a good financial advisor on your side.

• It’s also important to plan what you’re going to spend. We've seen or experienced the effects of inflation when booking our vacations, and this is something that regulators (Central Banks) will be closely monitoring this summer.

Having spelled out this backdrop, the experts at MAPFRE Gestión Patrimonial (MGP), a MAPFRE unit that offers professional financial advice, have five recommendations to protect this portfolio:

• Our preference remains to keep 15% of the portfolio in short-term funds with high profitability.
• Increase the duration as protection against the excesses of equity up to 4-5 years.
• Equity, yes, although we prefer diversification over concentration risk.
• Active management versus passive management also with a view to avoiding concentration risk (Nvidia has seen contractions of 15% in three sessions, etc.).
• Regarding monetary policy, nothing is expected to change through September, so, on that side, things will be calm.