Based on our view that risk assets are over extended and S&P500 earnings will most likely not support the current PE multiple, we are tilting client portfolios towards a more defensive asset mix and using derivatives to generate lower risk returns.
Over the next 3 months, portfolios with allocations towards banks, resources, industrial and property run the risk of seeing significant volatility for little or no added upside benefit. In times like these, investors need to look at their strategy for managing risk and calculate the potential upside of staying fully exposed versus reducing exposure, moving to a defensive asset mix and generating returns through at-the-money calls.
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We like CSL, SHL, RHC, ANN, TLS, TCL, WFD, CCL and CTX as examples of defensive names that can deliver both capital growth, as well as 10% of annualised income through the upcoming dividend and call option premium.
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