Overview
All performance is relative. It’s an idea worth holding on to in a year already marked by significant volatility in markets. Traditionally, our industry will tell you to look through such periods. Long-term returns are always the underlying game. But there is also the second big truth of financial markets to contend with: there are always winners and losers.
That only becomes more resonant at times of market dislocations. We have entered a period of heightened uncertainty. Much of the focus has been on the United States but there is also more political uncertainty across Europe. The environment in which we find ourselves is less stable than it used to be.
At times like these, investors tend to feel like drivers making their way through a bank of fog. The way forward is murky; the sensible reaction is to take your foot off the pedal and slow down. That is the best advice we can give clients at the moment: be more careful. Trim the satellite risk in your portfolios and run a higher cash buffer. As we discuss here, well-managed income strategies, backed up by the best research, can also both deliver yield and prove robust in times of volatility.
Beyond the fog, however, there are new opportunities emerging. We should not be fooled into believing that the world is heading into a downwards spiral in which the only real financial winners will be the holders of gold bars. Adjust at the edges but think through the shifts that are likely to follow this geopolitical manoeuvring. Where would you reallocate once you regain some more certainty? The position of the dollar does seem to be changing. There are opportunities in markets we previously regarded as fringe emerging plays. Southeast Asia looks more appealing than it did.
As all this plays out there are industry trends that continue to accelerate. The growth of ETFs is a long-term change that will only deepen this year, as my colleague Alastair Baillie Strong explains in this section of our Mid-Year Outlook. The way we operate and partner has also shifted. An industry that worked very much at arm’s length with its clients now hangs far more on true partnership between asset pools. There is opportunity for companies that strike partnerships, as Ghislain Perisse discusses with reference to an insurance sector facing a new set of challenges.
Also here is a preview of our new Investor Toolkit, which delivers a range of ideas from our asset class experts on how to deal with the different scenarios ahead. On credit and the fate of the tech sector, they and the bank of analysts behind them have helped us stay ahead of the game in a volatile six months. And with the right research, it may not be foggy for long.
