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Future-proofing 2.0 – portfolios put to the test

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Recent months have shown once again just how quickly the winds can shift in the financial markets - a huge wave of selling is followed in the blink of an eye by a surge in the other direction, leaving investors to wonder whether both anomalies were exaggerated . How should investors react to such gutwrenching changes in the weather patterns on Wall Street and elsewhere?

Future-proofing 1.0

In September 2018, the far-advanced bull market, increasing risks and signs of changes in the overall investment environment prompted us to launch the initiative “Future-Proofing Portfolios: Get Your Portfolio Fit for the Future”. In anticipation of more turbulent times, we recommended positioning the portfolio properly for the late cycle, i.e. by means of a comprehensive check. This was followed in October by a rapid shift in equity market sentiment, from which the credit markets were not spared. Not only did a price and valuation correction ensue, but also a greater awareness of risk. Has this made the concept of “futureproofing” obsolete?

 

Future-proofing 2.0

Already in our first study we recommended hedging. However, this should be accomplished on a situational basis, since the costs of permanent hedging significantly reduce total return. But regardless of whether or not hedging is actually undertaken, we recommend that investors subject their portfolio to a review that encompasses the following levels:

  • Allocation
  • Portfolio Construction
  • Implementation

To verify that this approach works, we have put our recommendations to the test. Find more detailed information in our updated paper.

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