Advisers need to hold fast to disciplined approach

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The global financial crisis was further proof that financial advisers need to have the hard conversations with their clients and hold to long-term asset allocations to take advantage of sharp upswings.

Wednesday, November 4th 2009, 5:50AM

by Paul McBeth

The crisis that saw stock markets overseas come crashing down also left opportunities for disciplined investors to take advantage of solid gains, according to senior investment strategist at Russell Investment Andrew Pease. A lot of investors got out of equity markets at the bottom of the cycle as they got swept up in the fear and made their investment allocations too conservative, he said.

"The big lesson to come out of it is the importance of the processes and disciplines of how to manage the markets," Pease told Good Returns. "A good financial planner should be helping their client manage that discipline" to follow market cycles rather than chasing the latest trends, he said.

Pease said investors should have been rebalancing their asset allocations through the upswing, and should be doing it through the downturn as well to make the most of market volatility.

Like most other investment strategists, Pease said equity markets in developing economies are still the most attractive option for investors. Stocks are still under-valued, and he would expect to see an annual return of about 8% if he was to set up a fund today.

"The best options at the moment are emerging markets - you can't get away from it - particularly Asia," he said.

Underpinning Asia's prospects is the massive liquidity in the region, which collectively has bought some US$525 billion in US dollars.

The demographics of many countries in Asia are also aligned with faster economic growth than that of developed nations, and allow investors to realise bigger gains than those in other regions.

Still, Pease warns investors against putting all of their eggs into one basket, saying exposure to emerging markets is just one part of a portfolio and does not make up a balanced fund on its own.

Paul is a staff writer for Good Returns based in Wellington.

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