Barclays Wealth advises clients to increase portfolio risk

Barclays Wealth, the global wealth management institution, announced today its monthly research providing a set of investment recommendations for investors all around the globe. The February “Compass” edition from Barclays Wealth, which provides a set of recommendations based on quantitative as well as qualitative research, projects a continued view for global economic growth and encourages investors to revisit their allocations to low risk bonds and consider higher yield options.

The report highlights that the global economic progression has improved in the past month and the most significant shift has been in the US, with improvement and increased confidence in the euro-zone following suit.

Khurram Jafree, Head of Investment Advisory MENA at Barclays Wealth, said:  “The start of this year has been promising. Global growth prospects have improved, particularly in the US.  With low interest rates, quantitative easing and higher after-tax incomes, it is likely that US household spending growth will remain solid in the next year, even if still-high unemployment prevents an outright spending boom.”

Compass’ February research also looks at how the global economy continues to recover and, as the outlook for 2011 becomes clearer, stocks are still the preferred investment option. The report suggests that investors should hold a higher than normal allocation to developed equities but at the same time be cautious of the remaining risks and therefore hold larger positions in high-quality government bonds.

“There are some interesting trends emerging so far this year. It looks like the sharp sell-off in core government bonds that started in November have stopped. Yields peaked in December, and have now fallen back slightly after that. We realise that these assets are expensive and we suspect they may remain so for a while. We recommend that clients hold a large proportion of developed equities but we are also fully aware of the risks and therefore advise them to balance their portfolios and include a large piece of high quality government bonds,” added Jafree.

The research also states unrest in the euro-area bond markets. However, government debt auctions in Portugal, Spain and Italy have witnessed strong demand – reassuring policymakers that financial markets appear to be more confident that the euro area could survive in its current form. 

“As the financial crisis is slowly put behind us and the year ahead looks clearer, there may still be unfinished business for the financial sector and financial economists to deal with, but wider growth can continue.  In our view, even at this late stage such continued growth may not be fully reflected in many risk assets. This is not to deny that there are many on-going objective risks and we remain mindful of them in our investment recommendations,” concluded Jafree.