We have not seen such strong and synchronised macroeconomic growth momentum since before the global financial
\ncrisis. While we expect this to continue in the main, market stress events like the one we saw in February are likely to
\nbecome more prevalent and investors will have to adapt to more challenging and complex financial markets ahead. As
\nCharles Darwin said, \u2018It is not the strongest of the species that survive, nor the most intelligent, but the ones most
\nresponsive to change.\u2019<\/p>\n
Focus on real investment risk<\/strong><\/p>\n A true understanding of risk will be essential as we move into the next phase of the cycle. Quantitative easing (QE) has Use dynamic asset allocation with intelligent diversification<\/strong><\/p>\n In our view, investors\u2019 portfolios should be tilted towards assets that would profit from a growth environment, while Invest in equities but manage your risk<\/strong><\/p>\n We believe investors should remain invested in equity but actively manage their risk exposure. Equities have historically Allocate to private equity but be selective<\/strong><\/p>\n We expect returns from private equity to remain attractive in the years to come, supported by continued economic As Aldous Huxley said, \u2018The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing With monetary tightening
\nsignificantly modified the risk profile of the main traditional asset classes and we are likely to see another shift in risk
\nexpectations as QE is reversed.
\nWe believe volatility is an ineffective proxy for real investment risk, and yet is widely
\nused in popular risk management models.<\/quote>
\n There are hundreds of billions of dollars invested in computer-driven
\nstrategies using volatility to determine asset allocation and these models are likely to amplify market corrections. When
\nconstructing portfolios, we prefer to use a broader range of measures to assess risk, such as potential losses on capital,
\nliquidity, skewness and tail risk. In addition, we expect correlation shocks to occur more often at this stage of the
\neconomic cycle, fuelled by tighter liquidity and rising anxiety about monetary policy. The correlation between equities
\nand bonds will evolve as bond yields rise and become more attractive relative to stock \u2018yields\u2019. <\/p>\n
\ntaking into account rising inflation risk. However, with market stress events likely to occur more often, a diversified and
\ndynamic approach will be imperative. Intelligent diversification means not just investing in a lot of different assets, but
\nin assets that respond differently to common factors.
\nDiversification into alternative risk premia with a low correlation
\nto traditional assets, such as carry, equity long\/short factors or trend-following strategies, can improve the overall riskreturn
\nprofile of an asset portfolio, especially when traditional assets are looking expensive.<\/quote>
\n It will be important to have
\nthe flexibility to lower portfolio beta as required, through opportunistic hedging in the currency and options markets
\nwhen risk pricing in the market is not aligned with the true level of risk. It may also be beneficial to move from a \u2018beta\u2019
\nstyle to one more focused on \u2018alpha\u2019 generation by implementing relative value trades. <\/p>\n
\nperformed well in periods of higher inflation and tighter monetary policy, but with valuations in some areas looking
\nhigh, investors will need to be increasingly selective about the equity risk they want to take.
\nIn our view, a passive
\napproach to equity allocation is a risky proposition as all risks inherent in the market, good and bad, are present in the
\nbenchmark. Strategies that track market-cap weighted indices are particularly at risk of exposure to overcrowded,
\novervalued positions.<\/quote>
\n These indices will be vulnerable to price collapse when investors start to exit these stocks. In
\ncontrast, an active equity strategy allows investors to potentially avoid such unrewarded risks and target intended,
\nremunerated risk more precisely. Investing in equities is not immune to interest rate risk. With monetary tightening
\nexpected, investors will need to consider the sensitivity of their equity portfolio to sovereign bonds and protect it as far
\nas possible through active stock selection and sector allocation.<\/p>\n
\ngrowth and investors looking beyond traditional markets to boost returns. However, with valuations on the high side,
\nfinding good investment opportunities and maintaining price discipline will be the biggest challenges for private equity
\ninvestors this year. It will therefore be important to invest in companies that can deliver the required base case return
\nwithout relying solely on leverage and multiple arbitrage. Given the level of competition, we prefer strategies that allow
\nsourcing deals outside of large auctions, such as small and mid-market buyouts, or those with a sector focus. Some
\ncaution will be needed as private equity shows some correlation with public equity and high yield bonds, both of which
\nare looking expensive. Here again, investing selectively will be key. <\/p>\n
\nchanges and yet everything is completely different.\u2019<\/em> 2018 will offer the perfect scenario to judge how successfully asset
\nmanagers can adapt their approach to a more complex market environment. <\/p>\n","protected":false},"excerpt":{"rendered":"
\nexpected, investors will need to consider the sensitivity of their equity portfolio to sovereign bonds and protect it as far
\nas possible through active stock selection and sector allocation.<\/p>\n","protected":false},"author":1,"featured_media":70417,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1483],"tags":[1809,1655,1657,1716,1651,1807,2068,1901],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/70419"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=70419"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/70419\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/70417"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=70419"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=70419"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=70419"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}