Portfolio strategy for a highly volatile environment

In this column, I will offer investors ideas for reducing risk amid such high volatility. I recommend that you divide your investment into four parts as follows.
Part 1: Invest about 45 per cent of your portfolio in deposits and short-term fixed-income funds for stability and liquidity. In this low long-term interest rate environment, I recommend investing in fixed-income funds with high liquidity, such as money market funds and short-term fixed income funds that are traded daily. In addition, I suggest investing in term funds or rollover funds with a short-term horizon (not more than one year) in order to reap benefits from rising long-term interest rates in the next phase. 
Part 2: Invest about 30 per cent of your portfolio in local equity funds. The economic stimulus package and the increase in government spending to stimulate local consumption will support Thai economic growth this year. Also, the earnings prospects of listed companies continue to grow steadily and positively influence the Thai stock market. Therefore, Thai stocks remain attractive as likely generators of incremental returns for your portfolio.
For equity funds, investors should choose one of two paths. Those with no time to follow the market are advised to opt for funds with an active management policy, where managers look after the buy-sell timing for you. Alternatively, choosing funds with a dividend payment policy means investors will have cash flow during their investment horizon. Those investors with time to follow the market and take profit by themselves should seek funds with a passive management policy. The returns on these will be in line with the underlying index performance, such as the SET Index, SET 100 Index, or SET 50 Index.
Part 3: Invest about 15 per cent of your portfolio in foreign equity funds. American and European multinationals are still showing good earnings results despite the increasing volatility of global financial markets. Asian and emerging market countries have been benefiting from the investment inflow from investors concerned about crisis in the US and Europe.
For foreign equity funds, I recommend diversifying in a variety of markets – the US, China and Asia. Also, I suggest you watch the markets closely, set your exit strategy point and stick to your plan.
Part 4: Invest about 10 per cent your portfolio in commodities, especially oil and gold funds. Despite the slowing pace of the world economy, demand for a basic energy source such as oil is still primary. Oil is the great inflation hedge, so it is still attractive for investors as an alternative asset. Gold meanwhile is a safe-haven asset. In a volatile market, investors will tend to switch their investment from risky assets such as stock, to gold. Other factors supporting the gold price are rising inflation, market uncertainty and the depreciation of the US dollar.
Please note that this column is only a guide for your asset allocation. To meet their investment objectives at an acceptable risk level, investors should study all prospectus information carefully before making any decision.

Jarulag Ruangsuwan is senior vice president in the Sales and Marketing Department of Asset Plus Fund Management.