Grantham Says Sell Risk Assets Now: What Are The Riskiest Assets?

05/12/2011 Share 0 comments

In his latest letter, GMO's Jeremy Grantham urged investors to lighten up risk assets or reduce risk exposure in their portfolios. As markets have gone up without a 10% coorection since last September, it makes sense to review your portfolios.

The following are the riskiest assets that one should pay close attention to:

• Commodities (DBC) (GSG): as inflation and dollar debasing hedge, commodities have risen too fast and too high. This is especially true for silver (SLV) and somewhat in gold (GLD) and agriculture commodities (DBA). Strong fundamentals supporting commodity exposure is still intact. But at the moment, commodities are due to a correction (in fact, right now, a correction has been ongoing). 
• Emerging market stocks (EEM): dollar weakness and/or commodity prices are translated into pressure on emerging market economies. However, this is somewhat muted by the emerging market currency appreciation. Nevertheless, as emerging market stocks are somewhat leading indicators, one needs to be vigilant on its exposure. 
• U.S. and developed country stocks in general (SPY) (EFA): these are overvalued based on many long term stock market valuation metrics such as Shiller's CAPE10. 
• High yield bonds (HYG) (JNK): in the credit market, high yield or junk bonds have held up remarkably well. However, if economy recovery in the U.S. starts to fumble, expect low quality bonds to take a beating. 

In this environment, for long term strategic asset allocation portfolios in a 401K, IRA or a taxable retirement investing account, one should re-balance a portfolio that has over-weighted risk asset allocations. 

For a tactical asset allocation portfolios such as this six core portfolio, just keep a watchful eye and be prepared for risk asset reduction if it is called for. 

Check out Major Asset Trend Table Widget for more information. 

Symbols: DBC, SLV, GLD, DBA, EEM, VNQ, HYG, JNK