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Portfolio Diversification: key to critical market situations

Sep 29, 2021

Redacción Mapfre

"Broad diversification is only necessary when investors do not understand what they are doing." The Oracle of Omaha, Warren Buffett, said that.. However, as MAPFRE Wealth Management Investment Manager Daniel Sancho explains, "there are not many Buffets, so diversification is crucial both geographically and sectorally, and even in style, given the current market climate. Among the scares caused by the pandemic are the Evergrande scare, the rise in energy prices, and possible second-round effects. As a result of the imbalances caused by the pandemic, Sancho cites a number of concerns.

In the short term, as Sancho emphasizes in the weekly talk show “Ponte en Acción” ("Get into Action") by Negocios TV, it is difficult to understand the market behavior. "We emphasize that the most important aspect of investing is to determine your investment period, when you will need the funds, and to design a portfolio based on that information." In addition, he stated, "We should be looking for different management styles, as it is extremely difficult to predict the future today, and the market offers a lot of opportunity if we adopt an active management style."

Long-term debt, for example, has valuations that are currently difficult to justify, but which must be included in a portfolio for a conservative investor profile. Additionally, tensions have been observed in the American debt market, not due to the 'tax cliff,' but rather due to the Federal Reserve's anticipated change of policy and the start of tapering. Yet, as Gonzalo Lardiés, Andbank's senior manager of equity in Europe, points out, the American 10-year has yet to reach pre-pandemic levels. “There has to be debt for more conservative profiles, but we need to identify the curve, as well as the section. So, we recommend that management be delegated to professionals who have been operating in these markets for many years," concludes Sancho.

Click here to view the complete talk show featuring the two experts (in Spanish).

Records, risks, and reasons for caution (and optimism) in the markets

In the third quarter, U.S. equities extended their post liberation day advance, especially in the case of small caps.

How to invest with the stock market at maximums?

We are facing a high price scenario, in which questions for investors arise: Should one enter a market that is already “expensive,” or wait? Should you hold your investments, or is it time to sell? MAPFRE experts explain that being in a moment when stock markets are at record highs should not deter investment if we have a long-term outlook—the most suitable for retail investors—and good diversification.

Fed Highlights “High Prices” in Equities: Are We Facing a Bubble?

The U.S. Federal Reserve has dominated much of the economic and financial discussion in recent weeks, largely due to the debate over possible rate cuts, which were confirmed last week. On Tuesday, Chair Jerome Powell again drew attention by referring in a speech to the “fairly high” prices in U.S. equities. With Wall Street at historic highs, the question arises whether we are dealing with an equity bubble.