Conservative investors may have to take on a little more risk, whether they like it or not, in order to find growth in 2013, according to Erik Ristuben, chief investment strategist, with Russell Investments in Seattle.
“[Conservative investors are] conservative because they don’t like uncertainty,” says Ristuben who was in Toronto on Thursday to speak with advisors about Russell Investments’ economic and market outlook, “the unfortunate part is that a lot of them can’t afford as much certainty as they’d like.”
For example, cash investments as well as government bonds, offer negative real returns, says Ristuben, meaning that the safety of these strategies is simply too expensive for many investors.
Conservative investors looking for positive real returns, according to Ristuben, should consider a diversified equity investment strategy. Creating a portfolio that is globally diversified, including stocks from the United States and emerging markets, he says, will help to dampen some of the volatility that worries conservative investors.
Emerging markets are a particularly important part of a diversified portfolio, according to Ristuben, because Russell Investments expects those markets to outperform their peers in the developed world. As well, exposure to different regional markets also gives investors exposure to a variety of economic sectors, he says, which is important for Canadians because the domestic market is so heavily concentrated in resources and banking/financial services.
In choosing where to invest, however, investors need to take a close look at the companies themselves and not just the overall market.
The final quarter of 2012 was the best quarter for active managers since 2004, says Ristuben, and Russell Investments expects that trend to continue this year as company fundamentals rather than macro outlooks will be the dominant investment strategy.
Says Ristuben: “We think it’s going to be a good year for active managers relative to the passive indexes.”