An increase in market volatility is pushing asset owners to build a nimble portfolio, according to Olga Bezrokov, senior portfolio manager at Russell Investments, during a session at the Canadian Investment Review’s 2025 Risk Management Conference.
A combination of geopolitical risks and vague policy signals from central banks is causing investors to reexamine how they navigate turbulent times with the current portfolio construction tactics, she said.
“In order to build a plan that can respond to a particular market environment, how do we make the strategic asset allocation both structured but also flexible to succeed across a variety of market environments?”
Every investor takes a different approach, but there’s an opportunity right now to reinforce and make sure an asset allocation strategy includes adequate resilience and even some anti-fragility, added Bezrokov.
Typically, this is when diversification enters the picture for most institutional investors, particularly pension funds in need of an asset mix that can not only deliver return to meet the plan’s long-term objectives but also withstand volatility. In pursuit of this diversification, she said, investors are exploring the concept of multiple alpha drivers in addition to beta exposures.
The multi-dimensional strategies include quantitative, macro, thematic, active and passive. “While having a diversified asset allocation is key to have access to different beta drivers, excess returns also matter.”
As pension plan sponsors are looking for a portfolio that can incorporate both diversified asset allocations and alpha drivers, a particular focus is on strategies that benefit across multiple market environments and even some that can benefit in selloffs, said Bezrokov. “We are seeing [pension plan sponsors] look into very similar concepts and do research to figure out which strategies can protect them when everything goes awry.”
The increased volatility management is also adding pressure to the efficiency required to implement a strategy or even change it during market turbulence, she said. Investors are being challenged to move quickly, she added, while changing positions with separate accounts or cash transfers can take days — and in today’s economic landscape, this can take an investor from a proactive position to being too late.
“Whereas, if you have derivatives capabilities or overlays, you are able to be nimbler in a very volatile environment.”
The capability to use real-time data can also be a gamechanger for investors trying to make sense of a fast-paced investment backdrop, said Bezrokov, suggesting investors ask how much they can get out of their current data options and if that shows exposed risks for any strategy in real time.
Read more coverage of the 2025 Risk Management Conference.