Expert: Peter Fitzgerald, CIO Multi-asset and Macro, Aviva Investors Facilitator: Ralph Jackson, Consultant
Headlines:
- The importance of diversification, active risk management, and not relying solely on bonds as a hedge against equity risk due to changing market dynamics
- The growth of populism, the US-China tensions, and the potential impact of a new UK government on domestic infrastructure investments
Discussion points:
Various strategies and asset classes that can potentially hedge against or benefit from these risks were discussed, such as investing in commodities like gold and oil, quality stocks versus companies with poor balance sheets, and volatility strategies.
Bonds as a hedge
The traditional role of bonds as a hedge against equity risk and how this dynamic has changed. He presents a chart showing the correlation between equities and bonds across different decades, highlighting that bonds may not always provide effective diversification or risk reduction in portfolios.
Alternative hedging strategies
Alternative strategies for hedging against geopolitical risks, such as investing in commodities like gold and oil, quality stocks versus companies with poor balance sheets, and volatility strategies.
The importance of meaningful position sizes and active risk management was emphasised.
Geopolitical risks and opportunities
Specific geopolitical risks, including the US-China tensions, the growth of populism, and the potential impact of a new UK government on domestic infrastructure investments.
The opportunities in emerging markets like India and the potential for higher inflation and nominal growth were also discussed.
Key takeaways:
- Consider diversifying into alternative asset classes like commodities (gold, oil) and quality stocks to hedge against geopolitical risks
- Evaluate the effectiveness of bonds as a portfolio hedge and explore alternative hedging strategies.
- Monitor geopolitical tensions and their potential impact on investments, particularly in emerging markets
- Assess the risks and opportunities associated with a potential change in the UK government's policies regarding domestic infrastructure investments
- Continuously review and adapt risk management strategies to account for changing market dynamics and correlations between asset classes
