Equity markets have delivered strong returns year to date, but recently, volatility has risen as a number of market risks and uncertainties have appeared. Over the shorter-term, volatility is expected to remain elevated, and considering a more defensive stance with investment portfolios, may be warranted.
In a recent interview with MoneyTalk, Sid Vaidya, Chief Investment Strategist for U.S. Wealth, says that the Delta Variant, elevated inflation, decreasing policy support and supply chain shortages could all be contributing factors to this volatility.
"Some of these factors have come to the forefront over the past few months, resulting in recent market volatility," he explained. "So, it's important to play a bit more defense with investments right now."
Defense doesn't mean sitting on the sidelines
Now when Sid says, "playing defense," he doesn't mean staying on the sidelines or selling off your investments, but being more selective with a focus on diversification, higher-quality investments and active management.
What Sid means is being more selective with respect to investment vehicles included in a portfolio. Within fixed income, given expectation for a gradual rise in interest rates, it is important to manage a portfolio's duration (how sensitive it is to a change in interest rates) and diversify beyond Treasuries. For equities, consider diversifying by geography, market cap and investment style.
"Furthermore, it will be important to focus on high-quality companies," he added.
Investors may also consider utilizing active asset managers who can continuously assess and take advantage of the current market environment.
Since the onset of the pandemic, policy support (both monetary and fiscal) has been substantial, benefitting companies across the quality spectrum. As this support diminishes heading into 2022, lower-quality companies, that have been more reliant on this support, will be challenged while higher-quality companies with strong fundamentals should see less impact by the change in policy stance. These high-quality companies will be ones that can grow revenues and earnings based on the demand for their products and services.
This article is for information only and does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell, or otherwise transact in any investment including any products or services or an invitation, offer or solicitation to engage in any investment activity.