Menu Close

Uncertainty no excuse to do nothing to your investments

But this month’s US inflation report, which didn’t improve as much as expected, is a reminder that this is a period of heightened uncertainty.

Sure, the outlook is always uncertain. This is true, and that’s why a well-designed, globally diversified portfolio, across traditional fixed income and equity assets as well as less-familiar, unlisted alternatives, remains the best way to preserve long-term capital.

Extra risk

And if you don’t see the world as more uncertain than usual, there’s a risk you’re not paying attention. Investors are confronted with cyclical issues – such as rapidly rising interest rates amid 40-year high inflation – as well as the (hopefully) cyclical pains of the pandemic and its aftermath.

But there are also more structural issues, including the fading impact of 30 years of hyper globalisation (as the world rethinks who it wants to engage with) and the end of 80 years of relative geopolitical calm (with multiple potential hotspots in play).

Taking a longer-term view, the brutality of markets this year has unwound significant amounts of valuation risk built up over many years. That’s not to say that further adjustment may not lie ahead – just that a significant amount of the journey should be over.


For those lucky enough to have cash out of the market (putting aside the sad news that it purchases 6 per cent less than it could a year ago), it’s likely time to consider putting some (but maybe not all) of that to work.

Valuation excesses appear less problematic. For those with already fully deployed portfolios, heightened uncertainty suggests a patient approach before adding risk to portfolios.

But that doesn’t mean there is nothing to do. Slower growth, higher inflation, higher interest rates and persistent volatility, even if the exact quantum of that remains uncertain, leaves a laundry list of opportunities to explore.

What to do

At an overall portfolio level, it’s time to check asset allocations haven’t drifted too far from their long-term targets.

Uncertainty and volatility should also be catchphrases for focusing on quality and resilience in portfolios. Diversifying across multiple themes (such as ageing, urbanisation, infrastructure or decarbonisation) can also help minimise future drawdown risk.


Within equities, should you have a more defensive sector tilt, given slower growth may affect discretionary consumer sectors and housing more materially than, say, healthcare or quality technology with attractive free cash flow yields on offer? Is there style bias or stock concentration risk across equity managers?

Are some equity markets more fairly priced than others? Does Australia look defensive given a low Aussie dollar, less inflation risk and a relatively more protected growth outlook, given likely elevated commodity prices?

Within fixed income, is it time to consider the higher yields on offer? In alternatives, is there more to do in building defensive positions (think real assets) and ensuring diversification across years and sectors in private equity (and a clear plan on how returning capital should be redeployed)?

Active portfolio management remains just as key through periods of heightened, near-term uncertainty as at times when we perceive risks to be more “normal”.

Leave a Reply

Your email address will not be published. Required fields are marked *