Although Towry Law is optimistic on stocks, it rules out a stratospheric climb Investment advisory firm Towry Law maintains that alternative investments are appropriate vehicles for many investors in the current market climate. David Chapman, senior portfolio manager in Towry Law's asset management division, says alternative investments have proved to be low-risk vehicles and are well suited to the volatile equity market. 'Of course, it depends on what the client is trying to do, but they deliver better returns than bank deposits, at little more risk. They become less attractive in a raging bull market, which we don't think is going to happen for some time. Although we are more comfortable and optimistic about markets, we don't think they are going to be soaring into the stratosphere. But there will be more attractive returns from equities.' Towry Law uses multiple strategy alternative investment funds aimed mainly at capital preservation, Mr Chapman says. 'If [you] are preserving capital and eking out monthly returns steadily, then over 12 months you have growth significantly better than bank deposits, without much volatility. Over the past 12 months you are looking at 7 per cent to 8 per cent, which we think is very attractive compared with cash deposits paying less than 1 per cent in US dollars. And alternative investments deliver their return with very little volatility, so investors are able to sleep at night.' However, Mr Chapman says alternative investments will lose some of their allure in a strong bull market because their returns will not match those available from direct equity positions. Mr Chapman says Towry Law is very positive on the Thailand stock market and is recommending units in an Asean (Association of Southeast Asian Nations) mutual fund to gain exposure. The firm believes United States and European equity markets are attractive, but have become slightly overbought in the short term. Mr Chapman says investors have been buying into these markets on evidence of economies recovering, low interest rates and bonds that appeared vulnerable. 'Taking a six-month view, there will be harder evidence of the recovery and better corporate profits coming through, and more people will be enticed into the US and European markets.' However, his firm is more attracted to Asian emerging markets. 'We think they offer better value and growth prospects. Of course, the risk is higher so you would limit exposure to the region.' Towry Law considers the markets in Hong Kong and China overbought and has issued a warning to clients to this effect. It also says the mainland economy is showing signs of overheating. 'We told clients it is time to take profits in China,' Mr Chapman says. 'We said: 'You have made good profits, don't withdraw completely, but reduce your exposure.' But if we see a 10 per cent to 15 per cent correction in Hong Kong and China, we will be going back in. We are still comfortable over the longer term.' Institutions in the US and Europe had begun allocating more cash to emerging markets, which should be positive for Asia, he says. Asian investors are becoming slightly more daring. 'They have seen equities beginning to come back into favour, and begin to produce returns over the past six months, so they are regaining their courage a little bit, but it is more like dipping a toe into the water.'
