Dubai: Once a mainstay for investors, the 60/40 portfolio no longer appears to be keeping up with today’s market environment, a top UAE investment banker has said.
For many years, financial planners and investors crafted portfolios composed of 60 per cent equities and 40 per cent bonds or other fixed-income offerings.
However, according to Maurice Gravier, the Chief Investment Officer at Emirates NBD Group, investors must integrate more asset classes into their portfolio in an uncertain market instead of going by the traditional 60/40 approach. “I am not saying that 60/40 is dead. But the last year was terrible, and the return of inflation means bad news for every asset class, bonds and stocks.”
He explained: “It is better to get returns from different sources and have more regional diversification, including cash and alternatives.”
Gravier said: “We are working on adding more hedge funds to our platform, and it works for gold as well. Gold behaves differently from the rest and real estate to some extent.”
Gravier spoke to Gulf News at the sidelines of the unveiling of the Emirates NBD Group’s Global Investment Outlook for 2023. The annual Emirates NBD CIO Outlook is an advisory blueprint covering investment opportunities, key global economic indicators, and in-depth financial market insights.
Unpredictability is the new norm
Themed “Adapting to unpredictability”, the 2023 outlook was presented against a new investment landscape emerging from the disruptions of the last three years, where uncertainty has become more structural, and unpredictability has become the norm.
Gravier said that portfolios have to adapt when unpredictability rules, and this is where the good news starts. “The broad turmoil of 2022 has improved long-term expected returns, especially from income-generating assets, and bonds have reconstituted their diversifying power against stocks. We have reshuffled our strategic asset allocations for stronger, better long-term portfolios,” he said.
Money markets and bonds have not been as attractive in decades, so there is no need to take significant risks to get a decent yield, said Gravier.
Is Big Tech still a good idea?
Commenting on whether investors should consider trimming their exposure to Big Tech, Gravier said 2022 turned many of the stock market’s former darlings into duds. Traditional tech growth is in question, and unprofitable tech companies, COVID-19 favourites in telehealth, Metaverse, streaming sector stocks, NFTs and cryptos saw falls of over 50 per cent in 2022.
“I would say think about it selectively. You have very different dynamics between Apple and Facebook, for example. Also, I think the time for hyper-growth is behind us,” explained Gravier. The investment banker also suggests investing in companies successfully developing artificial intelligence (AI) analytics around data and information that will provide better returns.
Regional outlook
According to the CIO Outlook, 2022 was a stellar year for GCC economies. “We estimate the UAE’s non-oil economy grew by 5.6 per cent in 2022 as tourism and travel recovered strongly supporting growth across a range of other services sectors,” the report has stated. The UAE’s population increase has also contributed to strong domestic demand. Emirates NBD analysts expect GCC budgets to remain surplus in 2023.
“The GCC will likely continue to outperform many developed economies in terms of GDP growth. While oil and gas output growth is expected to slow this year, continued investment to boost regional production capacity should see the sector contribute positively to headline GDP again in 2023,” explained the report.
