Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
BUILDING
PORTFOLIO
RESILIENCE
We see two broad categories of market risks: known risks, like runaway inflation, economic growth slowdown or recession, or the outcome of a major election, and ‘unknown risks’ – Black Swan events that cannot be anticipated by markets. The outbreak of the Covid-19 pandemic in 2020 was one notable example of an ‘unknown risk’, but the category spans unpredictable events like large-scale cyber or terrorist attacks and natural disasters, among others. So, how can investors position for the known and the unknown?
This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.
INFLATION AND GROWTH IN FOCUS
Persistent inflation and tighter central bank policy are putting pressure on economic growth. We think that portfolio allocations need to become more granular (through exposure to specific countries, sectors, factors or themes, for example, rather than just broad regional indices) and nimble (being prepared to make changes to portfolio allocations as market conditions and risks evolve at speed). In this volatile environment, we advocate building resilience into portfolios through stocks and bonds.
BUILDING RESILIENT PORTFOLIOS
Investors may be able to manage downside risk through varied, adverse conditions by building all-weather resilience into their portfolios. Resilient portfolios take measured risk accounting for uncertainty, hold diverse exposures, and adapt to changing market conditions over the long term. This covers both known and unknown risk.
Explore the tabs below for implementation ideas on how to build portfolio resilience through equities, fixed income, and commodities.
NAVIGATE OUR RANGE
For all-weather resilience in equities, we believe defensive factors and quality sectors may provide ballast in volatile markets, and also favour exposure to beneficiaries of long-term secular growth trends, like sustainability.
References to specific investments are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such investments.
We believe government bonds can play a part in building resilience, with a focus on shorter duration exposures, and in corporate bonds, we prefer an ‘up in quality’ approach through ‘investment grade’ exposures that focus on companies with strong credit ratings. With inflation likely to remain above historical levels over the medium term, investors may look to hedge against this risk through inflation-linked bonds.
Reference to individual investments mentioned in this communication is for illustrative purposes only and should not be construed as investment advice or investment recommendation.
References to specific investments are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such investments.
Gold may boost all-weather resilience as a portfolio diversifier: the precious metal has near-zero correlation over the long term to global stocks and a negative correlation to rates.
Source: BlackRock, August 2022
References to specific investments are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such investments.