As a global equity fund manager, I keep a close watch on world affairs. Geopolitical events can have a profound impact on the stock markets.

At the time of writing, two major crises are unfolding: the people of Japan are struggling to come to grips with the devastation and loss due to March 11’s earthquake and ensuing tsunami. Emergency workers are now struggling to thwart a nuclear catastrophe at four reactors at a power plant near Fukushima.

Meanwhile, historical changes are unfolding across North Africa and the Middle East. People power has brought an end to regimes in Tunisia and Egypt. Libya is in the midst of a civil war and, in a rare show of international co-operation, the United Nations had adopted a no-fly zone to protect civilians there. Unrest continues in Bahrain, Yemen, Iran and Algeria.

Investment markets, for their part, loathe uncertainty and have responded in kind.

Oil-supply fears pushed the price of Brent crude oil to a high of US$115 a barrel before retreating, up from about US$96 a barrel in mid-January. In the aftermath of March 11, Japan’s Nikkei stock market average plunged by about 16% in value before making up some lost ground. Major stock indices in North America and Europe have erased winter gains and are flat year-to-date.

The sense of global upheaval comes in the midst of sideways markets. Through 2009 and 2010, the S&P/TSX composite index reached highs not seen since 2008, but that market has been seeking direction in recent months.

Sideways markets are typically roller-coaster rides. But, this time around, we are experiencing more dramatic peaks and valleys. It’s all very unnerving, and many of your clients may be reaching for the Alka-Seltzer.

Clients need to hear from you directly in these moments of doubt and volatility. This is a perfect opportunity for you to prove your worth and help keep client emotions in check.

I place my faith in investing principles to see me through.Diversification is a key safeguard in an investment portfolio. It’s the single most important factor when it comes to building and protecting wealth.

Investing in a single stock or asset class is a risky proposition. Each year, Franklin Templeton Investments Corp. updates it’s popular “Why diversify?” chart that we share with financial advisors. The chart, dating back to 1991, tracks the yearly returns of 14 asset classes, from Canadian, U.S. and global equities markets to bonds and fixed-income.

Consider the BRIC nations of Brazil, Russia, India and China, which could do no wrong in 2005, 2006 and 2007. The BRIC index, reflecting stock market returns in those nations, reported returns of 40.8%, 56% and 34.9% respectively.

In recent years, however, the BRIC index’s performance has been up and down like a yo-yo. In 2010, BRIC funds performed well below many sectors, returning a slender 4.1%.

Canadian small-caps, meanwhile, were on top of the heap in 2009 and 2010, reporting returns of 75.1% and 38.5% respectively. Through much of the 1990s, however, this asset class hovered near the back of the pack in performance. (See story above.)

Experience shows us that in times of global uncertainty and accompanying volatility, portfolio diversification makes sense. IE



Don Reed is president and CEO of Toronto-based Franklin Tem-pleton Investments Corp.