Striking a balance in wealth management during volatile times

Investors can weather this stormy spell – with the right advice, writes Josh Matthews

Helping clients navigate a volatile market and a global crisis is never easy. Before investing a client’s portfolio, we sit down and take them through various scenarios to understand their response. For example, how they would feel if their portfolio depreciated by a certain percentage? This helps us understand their risk appetite, which is one of the key fundamentals we use when assessing the suitability of a mandate for the client.

At MASECO we invest client portfolios into multiple asset classes, which include local currency bonds, global bonds, alternative credit and managed futures as well as equities. These asset classes have, historically, exhibited low correlation between each other and are therefore, we believe, valuable components of a diversified portfolio.

Although the equity portion of clients’ portfolios are down circa 30 per cent this year (at the time of writing), the other asset classes are either slightly down or up, which have helped clients mitigate the equity depreciation. At the moment, we are speaking with clients to ensure that there are no changes to their personal circumstances, such as job loss. Facts such as this would require us to review their investment time frame and capacity for loss, which may require a re-evaluation of our mandate.

We make sure that we listen to our clients and where a client is particularly nervous or their investment portfolio is bordering on their previously stated capacity for loss, we have taken a decision that we will not rebalance those accounts for the time being. Generally, for most of our clients, we will continue with our rebalancing programme to ensure that their portfolios remain in line with the mandate established on the basis of their circumstances.

For example, a client aged 40 with a retirement plan which they are not going to need for 20 years may maintain a higher exposure to equities as they will have a longer period of investment time over which markets, being cyclical in nature, should recover. However, given the volatility in equity markets, we are doing so in a phased approach. No one knows how long this pandemic will last or what its long-term ramifications may be, so it is imperative to stay diversified into investments that are not highly correlated.

During these volatile times we would expect local currency bonds to maintain their value, managed futures to trade in a non-correlated manner, and alternative credit (which has exposure to esoteric and uncorrelated investments, such as divorce funding) to continue to perform as expected.

When the market starts to feel more confident about the future, we would expect uncertainty and volatility to subside and then equities should start to push higher. So we would say to investors, figure out your risk appetite, diversify your portfolio, stay rational and think long-term, as the short term is very uncertain.