Creating portfolio resilience
STRATEGISTS and advisers have warned investors since late last year to brace for volatility. This has come to pass as US President Donald Trump’s rhetoric on tariffs has kept markets on edge.
Where can investors find shelter?
In March, the Vix – the market’s “fear gauge” which measures the expected volatility of the S&P 500 – has been above 20, a measure associated with falling stock prices. The good news is the Vix is signalling rough waters, according to Barrons, but not a bear market.
In this first edition of Who’s Who in Private Banking for 2025, six panellists put their fingers on the pulse of the factors causing markets to fret – the overhang of wide-ranging tariffs and valuation challenges in US AI-linked stocks, among others. But they also tell us what they see as potential positive and negative surprises, and how investors can hedge the possible downside.
The bottom line is that the panellists are optimistic on US and Asian equities, including China, as well as the artificial intelligence (AI) theme despite the ongoing consolidation. Yes, they take a risk-on stance – but with some guardrails due to volatility and inflation risks. On the plus side, a soft landing remains the base expectation for the US economy, and global growth is also seen to remain resilient. Central banks outside the US are expected to ease policy, which is positive for non-US companies’ earnings.
This takes us to the strategy that stands the best chance of building resilience into your portfolio, while generating a respectable return. Diversification, which spreads your exposures across asset classes, industries and geographies, isn’t exciting and may occasionally fail – as it did in 2022. But it’s still a tried-and-tested strategy, enabling you to stay invested and reap compounding returns.
SEE ALSO
Equity markets are already reflecting the value of diversification. Year to date to Mar 24, both the S&P 500 and Nasdaq have chalked up negative returns – minus 1.9 and minus 5.8 per cent, respectively. But elsewhere, the Euro Stoxx 50 has returned 11.6 per cent, and the MSCI Asia Pacific Index, 3.9 per cent. The Hang Seng Index has done even better, up nearly 16.4 per cent for the year.
Historically equities generate the best returns, as the UBS Global Investment Returns Yearbook 2025 finds over the past 125 years. But there have been deep drawdowns which can last more than a decade. Investors need some key ingredients to weather the drawdowns: patience, high-quality assets including investment-grade bonds, and diversification including alternative investments. And of course, there is gold, favoured as a portfolio diversifier and inflation hedge, with further room to appreciate.
Copyright SPH Media. All rights reserved.
