Navigating volatility: Embrace risk and take a long-term view

Echoes of past crises and booms are loud in today’s markets. Yet they are only useful to investors who treat history as a guide to preparation, rather than prediction. This is the approach of the investment teams at Loomis Sayles, founded in Boston, USA, 100 years ago this year.

At Loomis Sayles, investment teams draw on lessons from past market cycles to inform how they assess risk today. Aziz Hamzaogullari, Founder, Chief Investment Officer and Portfolio Manager of the firm’s Growth Equity Strategies (GES) Team, shares why he believes investors should adopt a structural and permanent approach to risk mitigation, while co-team leader of its Global Fixed Income Team Dave Rolley reflects on historic market turning points and what today’s artificial intelligence (AI)-driven market enthusiasm could mean across asset classes.

Two critical turning points

Rolley distils 40-plus years of investment wisdom to explain how two historic turning points in markets still echo strongly today – and what the AI “fixation” in equities could mean for fixed income investors. He says two turning points shaped his career and taught him a valuable lesson he still carries today.

The first was the breakdown of the Bretton Woods agreement, which linked major global currencies to the US dollar and the dollar to gold after World War II. When this system ended in the early 1970s, it contributed to a period of high inflation and market instability. This culminated in then-US Federal Reserve chairman Paul Volcker taking a “whatever it takes” approach to bring inflation under control, raising US interest rates to high levels – with short-term Treasury rates reaching 20 per cent and long-term bond yields rising into double digits. From that period, confidence in US assets strengthened, helping to cement the dominance of the US dollar and setting the stage for a long bull market in US fixed income and equities.

The second was two decades later, when China emerged as the dominant force in global markets. Many investors missed out on the full benefit as they had abandoned emerging markets after the Asian debt crisis. The difference, says Rolley, was recognising that global change was underway and that China would become the “single biggest force moving international markets”.

“The key was differentiating market risk from actual risk,” he says, noting that the real risk was much lower than many investors perceived.

In both cases, what looked like incremental change at the time turned out to be paradigm shifts that reset asset classes, capital flows and policy frameworks. Rolley warns against anchoring to old regimes, a useful reminder as many of the global economic frameworks in place since the second world war are now being rewritten.

Rolley adds that today’s enthusiasm for AI is another area that calls for caution. The optimism that AI-driven tech revenues will deliver spectacular growth over the next decade leaves markets vulnerable.

One of the clearest lessons from recent decades, he says, is that the same asset can behave very differently across regimes. The post global financial crisis era taught investors to see long-duration government bonds as a reliable hedge for equities; the post Covid inflation shock exposed the fragility of that assumption.

“In a shock that hammers equities – especially a US tech disappointment – non dollar fixed income, not just Treasuries, will likely be the best hedge,” says Rolley. If equity wealth collapses and recession follows, policymakers may cut rates, other currencies may rally as investors diversify away from over owned US assets, and global bonds could perform well. However, if there is an inflationary shock, similar to 2022, fixed income could fall and “the hedge” could become a loss amplifier.

Is the market more uncertain now than in the past?

While macro regime shifts shape how assets behave across markets, Loomis Sayles’ Hamzaogullari says investors should also account for the constant presence of risk when allocating capital.

With a career in equities investing that extends beyond three decades, Aziz has seen multiple market bubbles and corrections. He says equity investing demands a “structural and permanent” approach to risk mitigation.

“Most of us think that the world is more certain than it is on any given day,” he says. “Over the past 150 years or so there have been 23 corrections of 15 per cent or more¹. So, roughly every six and a half years there has been a major market event.”

Investors, he says, should train themselves to remember that risk is always present – and embrace that uncertainty.

His GES Team reflects this by allocating capital with a “structural and permanent approach to risk mitigation”. Risk management, he says, is an integral part of their investment process, not a separate overlay or optimisation process.

This approach also shapes how his team evaluates companies.

“First and foremost, we seek to understand the company on three metrics: quality, growth, and valuation. It has to be truly unique on all three fronts for us to even consider it as an investment,” says Hamzaogullari . Competitive advantage is one of the quality aspects evaluated by the GES Team and comparing Amazon and Dell makes concrete the importance of sustainable competitive advantages.

He believes a company’s business model must be truly differentiated and difficult to replicate. That, he says, is a key competitive advantage.

Amazon’s key insight was to relentlessly build on its value proposition of selection, price, and convenience. Sticking to his guiding principles, Jeff Bezos and Amazon executed on them through successive adjacencies – from e-commerce to logistics, to cloud, and advertising – extending and sustaining Amazon’s competitive advantages.

By contrast, Dell diluted its competitive advantage when it moved from its differentiated direct sales model into indirect sales channels where rivals had the edge, prompting Hamzaogullari to sell the stock in 2008.

As part of its centennial celebrations Loomis Sayles is looking back at formative moments from its history and the lessons its long-serving investment team members have learnt throughout their own careers. Read more insights from Loomis Sayles’ 100 years of investing.

¹ Source: Journal of Portfolio Management, July 2023, ‘Fairy Tails: Lessons from 150 Years of Drawdowns’, Ashwin Alankar, Daniel Ding, Allan Maymin, Philip Maymin, and Myron Scholes. Number of drawdowns since 2000 as at November 2025.

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