“There is no longer such an emphasis on advisers buying straightforward, vanilla funds.
“A lot of fund buying is managed now by discretionary managers to whom advisers are outsourcing and, within that space, looking to build portfolios with more sophisticated strategies, running multi-asset portfolios, and looking to diversify into alternative areas alongside traditional asset classes.”
Still, lest we forget the rule about eggs and baskets, diversification across different asset classes and strategies remains arguably the easiest and best-proven way of protecting against downsides.
Back to basics
Getting back to basics, Ali Chabaane, head of portfolio construction at Pioneer Investments, stresses that a market downturn is an opportunity to revise all the investment cases one has in a portfolio and decide whether to “hold, close or open anew”.
“For us, the market downturn, with or without increased volatility, is more of a business as usual occurance, in the sense that when we invested before this downturn, we had in mind that volatility might go up,” he says. “In choosing our positions, we take into account that when a downturn happens it is a surprise, but one that we can manage.
“Of course, a market downturn or any increase in volatility will create new opportunities, and realise or invalidate investment cases.
“The effect of a market downturn can be managed efficiently through effective diversification, where the weight of the positions that are sensitive to market volatilities is not dominant in the risk allocation of the portfolio.”
Eyeing fixed-income portfolios since the second quarter of this year, Pioneer has taken a negative stance on European credit spread levels. A short position was in place on the back of fundamental and technical signals all hinting towards potential future spread widening.
