Other investment recommendations, looking beyond near-term volatility, include:
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Trim exposure to government bonds and add to cash overweight
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Consider using Alternative Trading Strategies as a portfolio management tool
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Cash is a better "safe haven" than bonds, Swiss francs or gold
More modest economic expectations
While the soft patch in developed economies has threatened to turn into a more pronounced setback, the US should still skirt a material recession and global growth will remain firmly positive.
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US growth will continue to recover, albeit slowly, and US interest rates will stay low for longer
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As expected, economic growth in Europe is slowing. Lack of growth in Germany and France in the second quarter is a cause for concern
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The ECB will act as a backstop for euro area liquidity
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The Japanese economy will likely contract 0.3% this year (less than expected) but grow by 2.8% in 2012
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Emerging markets, in particular Latin America and trade-dependent economies such as Singapore and, Korea and Taiwan, are not immune to recent market turmoil
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China continues to slow, but domestic demand is resilient and the probability of a "soft landing" remains high
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Each of the big three currencies face problems. The Swiss franc and the Japanese yen have risen as safe haven currencies, but Barclays Wealth does not advocate investors take shelter there
Kevin Gardiner, Head of Global Investment Strategy, commented: "The ongoing euro area sovereign debt crisis; the uncertainties surrounding US fiscal policy; and disappointingly weak economic data, unsettled markets in August. However, while our own expectations for the second half are more modest than they were, we still believe that developed equity valuations are attractive."
In the context of the diversified portfolio that is at the core of its Investment Philosophy, Barclays Wealth also recommends moving funds from government bonds and adding to the tactical cash overweight established in July. Kevin Gardiner said: "We haven't cut our position in bonds to underweight because we worry about sovereign creditworthiness. Rather we see the global economy as being more important than marginal changes in creditworthiness as a driver of markets over the months ahead."
Barclays Wealth believes the best tool for managing unsettled markets is asset allocation. Within a diversified portfolio, Alternative Trading Strategies (ATS), funds that aim to generate profits for investors by actively taking long and short positions in a wide range of markets, can both enhance returns and mute volatility. Kevin adds: "Times of market stress are the acid test for any investment strategy. The ability to generate alpha, coupled with active risk management has provided decent downside protection while reducing overall portfolio volatility."
Further detail is set out in the latest edition of Barclays Wealth Compass report.
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