Following a strong 2017, the early February selloff and subsequent quick rebound, investors are rethinking their strategy as they face a mature bull market, according to a release from Schroders.
“We still feel that we are in an environment that is supportive of taking risk, it’s just that it won’t be as supportive as it was last year,” says Remi Olu-Pitan, a multi-asset fund manager at the firm. “Really, this is the point in time to take a step back and really look at how one should manage one’s portfolio in this environment.”
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Schroders points to several strategies to bear in mind as developed markets move into this later stage of the cycle. “The first is, you don’t want to be greedy,” says Olu-Pitan. Since the 2008 financial crisis, stocks have ground higher, especially in 2017. “This is the point in time when you really need to change your outlook in terms of what you are aiming to achieve.”
It also isn’t a time to chase the winner or follow momentum, she says, stressing that investors can’t wait to be swept higher by continually rising equities. Instead, in coming conditions, it will be imperative to understand the firm underpinning of investment choices, no matter the asset, says Olu-Pitan.
She notes that institutional investors should begin to revisit their return assumptions across all of their assets, but equities in particular. “This is quite a challenge, because I know a lot of institutional investors require a certain level of return,” says Olu-Pitan.
“This is the time when they have to sit down and think, is it realistic to expect to get eight-plus per cent from equities over the next few years? This might be time when we have to reduce our expectations to ensure that our portfolios are more resilient,” she adds.
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Further, it makes sense for institutional investors to continue to see out additional alternative strategies in this environment, says Olu-Pitan. “When the role of government bonds is being questioned in portfolios,” the diversity offered by non-traditional strategies is in the spotlight. Infrastructure investments, especially debt, she notes, are maintaining the higher yields investors are so hungry for.
However, the nimbleness that institutional investors will likely need to function in choppier conditions ahead will be somewhat hindered if they sacrifice liquidity for alternatives, notes Olu-Pitan. “Typically, that illiquidity tends to be quite painful during periods of market stress.
“It is very important to ensure that the potential returns are compensating you adequately for the illiquidity involved in these assets,” she adds.
In light of the mature bull market, is it time for investors to revisit their expectations for equity returns? Should they be scaling back in favour of broader diversification or is there still room for equities to provide robust returns? Have your say in our latest online poll.
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