What we think

Economic slowdown worries have encouraged central banks to loosen monetary policy again, but many factors that are hurting growth are non-monetary in nature. Even though the effectiveness of monetary policy is nearing its limits, and calls for fiscal stimulus will be more vocal, we don’t anticipate a massive fiscal boost. Political developments will also continue to have an impact on markets.

Growth, earnings and valuations concerns will all tend to boost volatility, reinforcing the case for a prudent investment approach, active management and prolonging investment horizons, where this is appropriate, to secure better potential returns. In this environment, investors may be tempted to increase cash holdings, but holding a higher proportion of cash within a portfolio could mean accepting either higher risk for the remaining non-cash holdings or adjusting long-term investment goals.

For sustained portfolio performance, getting the right strategic asset allocation (SAA) remains much more important.

What we suggest

Robust investment approach and SAA essential

• A robust investment approach can help investors to cope with volatility and generate returns in an uncertain investment environment. Volatile markets may also require active management and the use of tactical opportunities within an appropriate SAA.
  

Focus on long-term returns

• Investors may have to broaden and lengthen their investment horizons to achieve a given level of returns. Use of structured products may be one way of doing this.

Use alternative approaches

• Explore other approaches to increasing potential returns, such as capturing illiquidity premia in private markets for equity and debt.