Barclays in the Americas

Barclays Wealth 'Compass' October issue, seeks exposure to the emerging economies

Barclays Wealth 'Compass' investment calls for October include:

• Seek exposure to the emerging economies, as developed economies may suffer from a persistent 'failure to thrive'
  
• Add to existing overweight position in long-term, high quality bonds.
  
• Cut overall equity weightings to neutral after strong run in Q3
  
• Buy backstopped short-dated Greek debt

Aaron S. Gurwitz, Chief Investment Officer at Barclays Wealth, said: "We are not facing a crisis but it is evident that economic conditions have not recovered to the levels we would expect.

"The most accurate diagnosis of developed economies' current condition would therefore be a 'failure to thrive', meaning we may well be at the beginning of a prolonged period when returns on investments are lower than they have been in the past. This in turn means that investors may feel dismayed by the paltry yields currently on offer. Although we continue to hope for better things, we must accept the reality of the present."

In light of this, Barclays Wealth has made the following recommendations:

In a lower-return environment, be skeptical of taking on risky strategies or making radical alterations
Investments previously viewed as too risky or complicated are now attracting attention, but we urge caution. We expect relative returns to be in line with long-run averages so the optimal asset allocation at any given level of risk should remain almost the same. However, there are some portfolio shifts that we suggest in light of the economic situation.

Add to existing overweight position in long-term, high quality bonds
If a failure to thrive persists and interest rates remain low, future investors might yet look at the Fall of 2010 as the 'good old days' when yields on 10-day Treasuries were as high as 2.5%. For the time being, the likelihood of higher short-term rates is low, and the possible extension of Quantitative Easing programs will also support the long end of the market. 

Kevin Gardiner, Head of Global Investment Strategy, said: "Our economists are focusing on the risks facing the global economy; meanwhile, equities in particular performed strongly in Q3. We are therefore reducing tactical risk and adding to an existing overweight in government bonds, and cutting our recommended equities position to neutral, leaving a small ongoing overweight in High Yield credit and Emerging Market debt. We would stay underweight cash, and continue to describe our overall stance as a 'barbell' of sorts inasmuch as it favors assets that are likely to perform strongly both when market expectations are driven by economic nervousness and when they focus on corporate recovery."

Aaron S. Gurwitz, Chief Investment Officer at Barclays Wealth, said: "Economic risks currently are focused on the developed world and its failure to thrive.  This adds to the arguments for shifting exposure to the emerging world's more rapidly-growing markets. There are many ways of benefitting from this growth, such as investment in local equity, fixed-income and currency markets. However, there are attractive opportunities on top of these, such as investments linked to commodities and the stocks of companies in developed countries that do a lot of their business in the emerging world."

Buy backstopped short-dated Greek debt
Concerns surrounding the long-term fiscal solvency of Greece mean that yields on Greek debt widened at all maturities, providing an opportunity to earn high yields on short-term debt that is covered by the package of support offered by the International Monetary Fund, the ECB and the European Union. We recommend that investors hold this debt to maturity.

Brian Grossman, Fixed Income Strategist, said: "It is in the best interest of all to avoid a restructuring of Greek debt in the next few years, and a program is now in place to ensure it doesn't happen. We are not making a call on the long-term solvency of Greece, but we think the yield on debt maturing before the end of the support package presents an attractive opportunity for high composure investors."

For further information contact:

Jignasa Patel, Media Relations
+1 212 526 3945