Continued political and economic ambiguity will force investors to actively manage the risk in their portfolios if they wish to achieve their investment objectives, suggests new research from by Russell Investments Canada.
“There are macro forces at play that were not on the radar five years ago,” according to Shailesh Kshatriya, associate director, client investment strategies, Russell Investments Canada.
“While recent experience has been kind to conservative investors, no trend is indefinite and investors will need to look beyond global uncertainties and rethink their approach to asset allocation in favour of more broadly diversified, multi-asset solutions,” he says.
Russell’s latest research argues that intelligently diversified multi-asset solutions, which go beyond traditional stocks and bonds, will be crucial to achieving longer-term objectives.
“It’s not about increasing ‘risk exposure’ but improving ‘growth exposure,'” adds Kshatriya. “Investors need to look at adding non-traditional asset classes such as global infrastructure and real estate, high yield bonds and emerging markets debt, which can provide an additional layer of diversification that may not be represented in the more traditional approaches.”
Specifically, the research suggests that broader diversification comes in three ways:
- Improving the global macro focus by adding exposure to global and emerging markets equities.
- Fixed income exposure should become considerably more global with the inclusion of emerging markets debt and global high yield bonds.
- “Real assets” such as global infrastructure, global real estate and commodities provide additional sources of income, diversification and potential inflation protection.