Actionable investment ideas
When uncertainty is elevated and markets are choppy, investors should balance return seeking and defensive assets to navigate volatility and ensure true diversification. Offensive assets such as stocks, corporate bonds and emerging market debt can be balanced by defensive assets like high quality long dated duration, safe haven currencies and other defensive strategies. In addition, procyclical assets tend to outperform during economic recovery. Some of these assets – such as small cap stocks and credit markets – have lagged in the 2020 rally in risk assets, so valuations may be attractive. Finally, volatility and change cause prices to diverge from valuations. This is an environment for skilled active managers to add value, in particular when some valuations are rich. Fundamental driven security selection and tactical asset allocation can adapt to new conditions rather than relying on past behaviours.