After the impressive rally on the Tel Aviv Stock Exchange in 2009, the name of the game in 2010, most strategists agree, will be shares. But in the same breath, they warn not to expect high returns next year. So how much of a portfolio should be invested in equity? And what is a correct geographical spread?
Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) Chief Investment Manager Ori Rabinovich.
How much of a portfolio should be invested in equity? He said, "I would recommend investing 75% of holdings as a maximum position in shares. If we take as an example an 80/20 portfolio (20% shares and 80% bonds), I am taking into account that anybody who invests in it is solid, and therefore the level of correct exposure today is at even lower rates that the maximum exposure. When you look today at the level of prices in the market today they are reasonable. According to our estimates at the macro level, the market is more or less at a level of fair prices, and at this level compared to existing alternatives - investors should maintain a position of 75% of its possibilities."
What is the recommended level of exposure to overseas markets?
Rabinovich said, "In general adding overseas markets to a share portfolio has almost no added value to returns, but it lowers volatility, and therefore I would put 20% of the share component into overseas markets in the following proportion: 70% US, 20% emerging markets and 10% Japan."
Tamir Porat, CEO Clal Finance Portfolio Management Ltd.
How much of a portfolio should be invested in equity?
He said, "There is no doubt that if a year ago, at the height of the crisis, I was asked what is the most frequently recommended portfolio, most portfolios had about 20% exposure to shares. That was because some clients reduced exposure in their portfolios to shares, and replaced them with more solid options. It was actually during that period when we identified an over-shooting downwards and anomalous falls that we think the change of direction came about which over time created the desired impact."
Porat added, "Today, almost a year later, we recommend to clients an average exposure of 30% in shares. We see a global recovery ahead and growth based on economic plans. We are of the school of thought that the global fiscal and monetary efforts have proven themselves."
What is the recommended level of exposure to overseas markets?
On the whole most of the portfolios we hold are local ones. We have a very small exposure to shares in overseas markets because the TASE 100 is comprised, for the most part, of companies with global exports. It makes no difference where they are traded, today the index is enjoying the positive developments in the global economy and Israel Chemicals Ltd. (TASE: ICL), Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA; TASE:TEVA) and Makhteshim Agan Industries Ltd. (TASE: MAIN) will not grow if we do not see global growth. But there is also a linked additional parameter. You must understand that today the shekel is a strong currency and the market is still distorted towards Israel. Therefore, 20% of exposure must be in foreign markets."
Migdal Insurance and Financial Holdings Ltd. (TASE:MGDL) investment analyst Shmil Kutzman.
How much of a portfolio should be invested in equity?
He said, "The ratio of share in a portfolio can vary on a daily, weekly and monthly basis it can change and the more the market rises the ratio becomes smaller.
He continued, "In my opinion about 85% of the position today should be in the stock exchange. The market today is more or less at a reasonable level with multiples of 16 on the Tel Aviv 25, and the present interest is also correctly priced. What is pushing the market today is mainly low interest and in its wake people are going more and more into securities with its motif of risk and opportunity. From here on growth will be slow and the market will not soar but because it is very volatile, there is a high likelihood of falls. Therefore, the higher the market goes it is worthwhile reducing the equity component."
What is the recommended level of exposure to overseas markets?
He said, "I generally much prefer to invest in Israel, in the market in which we live. Going overseas at this rate or another spreads the risk, although the Israeli market has risen well in recent years, more than other markets. If there will be a crisis in the market, it is reasonable to assume that it will be local and not global, and therefore a spread in such an instance reduces risks."
Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2009
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