Wall Street pros reveal how to beat the volatility
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After the brutal sell-off in stocks, a multi-asset approach is back in the spotlight. CNBC Pro asks the experts how to invest to ride out the volatility — and make money in the process. The S & P 500 rallied last Friday to snap a seven-week losing streak, but it did little to mask the massive sell-off on Wall Street this year. This year’s index has fallen by around 13%, the largest drop in its history since 1970. Multi-asset strategies outperformed, despite the poor performance of equity markets. CNBC’s Margaret Chan, head of global endowment practice and global head for foundation practice, Cambridge Associates said that equity markets worldwide are in the double-digit negative. “Having a multi-asset portfolio has helped to perform.” Its assets total more than $600 million as of December 31. While portfolios still have negative outcomes, they are more negative than negative portfolios because private assets such as bonds and hedge funds perform better that public equities. There’s still a case for staying invested in equities, however — particularly for those with a long-term investment horizon. Chan said that investors could be pushed out by a market recovery if they run. Marcella Chow is a global market strategist for JPMorgan Asset Management and believes that current levels are a “reasonable entry point”. Although diversification is essential, investment professionals agree that it’s important to have an adequately diversified portfolio. Chan noted, “Time and a well-diversified investment portfolio are investors’ strongest assets,” especially during times of market volatility. Chan also stated that multi-asset diversification will provide higher risk-adjusted long-term returns. Thomas Poullaouec from T. Rowe Price is head of multi-asset options for Asia-Pacific, and he said that an increased asset allocation, as well as diversifying investments, can reduce the volatility impact on a portfolio. “Each investor must consider how market fluctuations are smoothed over time, which may help put your concerns in context,” he said. You can buy bonds. What should investors do in these times of rising interest rates and high inflation? Poullaouec explained that investors long-term who care about inflation risk and seek growth should consider the addition of both growth-oriented as well as inflation-sensitive assets to their strategic portfolio allocations. Poullaouec cited the example of TIPS and real asset equities. Real assets are stocks that have underlying assets. These include commodities stocks and real estate. While TIPS stands for Treasury inflation-protected securities, issued by U.S. governments. Chow from JPMorgan thinks that the current market warrants revisiting fixed income. Fixed income has become “attractive” due to the increasing spread of corporate credit, strong fundamentals, and low default rates expected for corporates. Additionally, investment grade bonds provide investors with a stable income stream and downside protection from slowing growth. Todd Jablonski is the chief investment officer at Principal Global Asset Allocation, Principal Global Investors. He also supports fixed income. “Appreciate the asset class for what it is – an anchor in your portfolio that should not be overly or unduly unfinished in investors’ portfolios.” Jablonski said that real assets can be another option to increase inflation resistance. He noted that the firm has a large amount of infrastructure, natural resource, and commodity investments. His firm is currently overweight on commodities as it acts as a hedge against geopolitics and inflation. However, the structural shortage in commodities suggests that they will perform well regardless of any further geopolitical developments. Foord Asset Management’s portfolio manager Brian Arcese says that real assets are able to keep their value and perform well during inflationary periods. He also flagged that real assets equities — such as miners and manufacturing companies — were solid hedges against inflation, with materials stocks another of his favorites. Arcese also stressed the need to keep cash in reserve so that you can make the best of any market declines. Arcese said that the current cash situation was sufficient to capitalize on what he expects to be volatile markets in the future.
On May 27, 2022, a person checked her smartphone at Wall Street (near the New York Stock Exchange) in New York.
Angela Weiss | AFP | Getty Images
After the brutal sell-off in stocks, a multi-asset approach is back in the spotlight. CNBC Pro asks the experts how to invest to ride out the volatility — and make money in the process.
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