How to Prepare Your Portfolio for 2020

VIDEO: After the presents have been opened and the mince pies eaten, investors may want to use the festive break to tidy up their portfolio. Morningstar's Emma Morgan has some tips

Holly Black 23 December, 2019 | 9:53AM
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Holly Black: Welcome to the Morningstar Series "Ask The Expert". I'm Holly Black, with me is Emma Morgan, a portfolio manager at Morningstar Investment Management. Hello.

Emma Morgan: Hello.

Black: So, we're coming up to the end of the year. And after all the festivities, I think a lot of people like to use this time to get their finances in shape for next year. So, what are some of the things that people can do to get ready for 2020?

Morgan: Yeah, sure. So, I think there's a few things that people can do. So, if you haven't already done so you could set up a regular savings plan. And if you're not using your Isa allowance, that's also a great tax efficient way to save so investors can save up to £20,000 a year in there, and also for their children, they've got £4,000. The other thing that you could do is if you already have a portfolio, equity markets have obviously been very strong this year. So, you might want to rebalance your portfolio.

Black: And what does rebalancing mean?

Morgan: That means looking at the exposure to equities and bonds, you might find that your equity exposure is gone over your target allocation and you reduce that back to target.

Black: So, it's basically when things do well, they sort of grow as a proportion of your portfolio. So, it becomes a bit skewed and not really what you'd planned.

Morgan: Yes, exactly.

Black: Okay. And it's also a sort of time to start thinking about what you're going to be doing in the next 12 months and how you want your portfolio to look for that. So, I mean, what are you doing in your portfolio?

Morgan: Yeah, so in aggregate, we think that equities look slightly overvalued. So, we have a little bit less than normal equity exposure. We're particularly reflecting that in US equities, which we think is a market that is expensive. However, we are finding some pockets of opportunity. So, over the year, we've earlier in the year we added to German equities, that market has a lot of auto companies and they have been sold off on concerns about potential trade wars, but we believe there's a lot of high-quality companies there. They've made a lot of cost savings and we think the valuations there look attractive relative to other European markets.

Another area that we've been adding to more recently is Korean equities. So that has a lot of semiconductor exposure. And again, concerns there over the potential slowdown in global growth has meant that that market has also lagged. We think that consolidation in the semiconductor sector means that the cycle won't be as extreme as it has been in the past. And again, we think valuations there are attractive. They however are quite cyclical sectors, so on the other hand another sector that we like, we've also been adding to over the last few months is health care. So that's much less cyclical sector, and it actually has some good growth prospects. It gives us more defensive qualities in our portfolio, and we think their valuations look relatively attractive as well.

Black: There's a lot going on in the world at the moment, and people might feel a bit worried about making these calls. So, it is important to keep an eye on the long term with these things as well, isn't it?

Morgan: Yes, definitely. And we all have to remember that we're not investing for the next year, many of us are investing for 20 to 40 years. So, we need to keep our eye on our long-term goals.

Black: So also with the New Year approaching, this is when we all make these grand resolutions for the year ahead. I'm going to join a gym and eat more healthy and and set up that regular savings plan. What's your financial New Year's resolution?

Morgan: Yeah, so every year, I will typically look at my regular savings and see what's changed in terms of my income and maybe my outgoings as well and I'll typically adjust that. But one thing this year that I really want to look at is my Isa provider. So, I set that up a number of years ago. In that area, there's been quite a lot of competition recently and there's been a lot of technological advances. So, I just want to make sure that I am getting the best value for my money given what I invest in, which is typically open ended funds, ETFs and also given my trading approach, which tends to be quite long term.

Black: Super. Well, good luck with that.

Morgan: Thank you.

Black: And thank you so much for your time.

Morgan: Thank you very much.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor,


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