How to profit from quantitative easing

How to profit from quantitative easing
14 October 2012

INVESTORS around the globe are looking to profit from rising confidence in markets amid signs that central banks are prepared to provide unlimited support for their struggling economies.

In September, the Bank of Japan became the latest to boost markets, adding 10 trillion yen to its programme of quantitative easing (QE). This takes the total stimulus to 80 trillion yen. The Nikkei index rose 1.5% on the news, reaching a four-month high.

This announcement followed the US Federal Reserve’s pledge to pump a further $40 billion a month into its economy until it shows substantial improvement, while the European Central Bank has pledged “unlimited” support for the Eurozone.

Previous rounds of QE were extremely positive for risk assets, such as equities, high-yield bonds, commodities and property. Shares have rallied 10-15% in the first six weeks of QE and peaked six weeks after the end.

Let’s take a look at where you could profit…

High income stocks

For long-term investors concerned about inflation high-yielding stocks provide a real rate of return. Being exposed to high-quality companies that raise their dividends consistently offers an antidote to the drop in purchasing power caused by inflation.

Property

Quantitative easing has been generally positive for real assets such as commodities and real estate. The NAHB/Wells Fargo housing market index, a measure of confidence, is at a five-year high.

Places like central London, New York City and Kuala Lumpur are particularly good pick for a safe and steady yield. Having recently bought in Kuala Lumpur myself I can personally testify to this.

Commodities

In previous periods of quantitative easing, commodities and precious metals have been the big winners. Last month saw gold bullion rise to $1,779 an ounce, close to its highest point in 2012. One of the easily ways to access gold is through an exchange-traded fund.

I have bought a small amount of gold and silver through the bullionvault.com website, which makes buying gold from the comfort of your armchair very easy indeed. Alternatively, you could take a trip down to the gold souk!

Asian currencies

Asian currencies, such as the Singapore dollar, Taiwan dollar, Malaysian ringgit and Philippine peso, are likely to be boosted by the increased supply of money in developed markets. Investors can buy individual currencies if they use private banking services.

For pension or retirement planning I would always advice having a percentage allocated to Asian equities, as much growth in the next two decades will certainly be coming from this part of the world.

Top tips

So, if you are thinking of investing or revisiting your dormant portfolio here are cashy’s top tips to bear in mind…

1. Analyse your own attitude to risk, decide how much money you are prepared to tie down and for how long and set your investment goals.

2. Research the fund manager, rather than the fund, by examining the manager’s track record.

3. If a fund underperforms over the short-term, check out how their rivals in similar sectors are performing. Don’t make any rash decisions.

4. Monitor consistent under-performance and consider ditching your fund manager.

5. Alternatively, consult a professional investment or qualified financial adviser.

Pic credit: freedigitalphotos.net

Where are you investing just now? Share your investment experiences with cashy by commenting below!

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Independent Financial Advisor
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