As Europe teeters on the edge of another recession, stock markets yo-yo and emerging markets growth slows, investors may be wondering how to structure their investment portfolios to weather the storm. Here Yogesh Dewan, founder of Hassium Asset Management, reveals his outlook on the global financial status, and give his top ten tips for a healthy portfolio.

Markets have rallied but we see the risk-on trade as a mini-bubble with light trading volumes. Investors have taken some comfort from better than expected US economic data, an accommodating Federal Reserve in the run up to the US Presidential election and the perceived success of the ECB’s LTRO scheme curtailing the funding risks for European banks. Events in Greece seem to be playing out and recent data in China is supportive of a soft rather than hard landing. The rally is a positive sign but in our view markets have rallied too much too quickly.

Fundamentally we do see improving corporate earnings, fair equity valuations and low interest rates all supporting global equity markets and the longer term global recovery. We still maintain that a global recession will be avoided. We also maintain that the US and emerging markets will continue to grow albeit slower than the markets had initially priced.

However, we continue to expect a recession in Europe with further credit rating downgrades, bank nationalisations and on-going austerity measures. Greece continues to be plagued with problems as do Portugal and Spain. In the US things are more upbeat reflected in recent housing data, positive corporate earnings and unemployment declining to 8.3 per cent. We remain mindful of elections later this year in the US and France and a leadership change in China.

Commodities and emerging markets have performed particularly well year to date despite geopolitical risks, inflation and asset price bubbles. In currencies the euro remains volatile as events in the Eurozone play out. On a PPP basis the US dollar still remains undervalued against most major currencies, driven recently by the perceived success of the LTRO scheme and progress in Europe. The Swiss franc, Japanese yen and gold remain firmly in bubble territory.

Remember:

1)      Keep at least 80 per cent of your portfolio liquid for the buying opportunities that will present themselves.

2)      Keep 30 per cent in cash as all asset classes will become highly correlated in a "black swan" event.

3)      Bonds are expensive. Don’t own Government bonds with more than five years in maturity.

4)      Don’t forget about Large Cap Global Equities as dividend yield is a meaningful component of return.

5)      Commodities and emerging market exposure are key but we would wait for better buying opportunities.

6)      Gold is a cash alternative and we would recommend limiting your exposure as it is in bubble territory.

7)    Limit exposure to banks and financials as the sector still looks vulnerable to geopolitical events.

8)      Keep exposure to hedge funds and private equity below 10 per cent as costs are excessive and liquidity non-existent.

9)      While selective real estate looks interesting investors should stick to high quality units in the best locations.

10)   Total portfolio fees should be below 0.8 per cent; including management, custody and execution costs.

At current market levels we would not be allocating new money in a meaningful way to riskier assets. Macro concerns continue to dominate with short term risks skewed to the downside. Our sense is to watch geopolitical, economic and market events very closely over the coming weeks and months and to look for another suitable entry point once we see real progress around the eurozone debt crisis. The rally is a positive sign and start to the year but now looks overdone.