Investment strategies need to be revised in an era of geopolitical uncertainty

Published On : 11/01/2024

By Ronan Kearney, Co-Founder of Altium Investment Management

Financial markets are always at the mercy of geopolitical instability. In recent years that has never been more true, with the onset of conflicts between Russa and the Ukraine, Israel and Hamas and lesser covered wars in Sudan and Somalia contributing to overall uncertainty on global stock markets. The closely-followed VIX Index, which charts stock market volatility, hit its highest point since 2020 over the late summer of this year. Against such an unstable market backdrop, financial advisers and investment managers need to consider fresh approaches, which take a more considered and sophisticated approach than the production-line type strategies that currently litter the market.

At Altium, we have an investment strategy that aims to optimise portfolios during geopolitical instability and protect investors through diversification and non-correlation, while focusing on long-term investment strategies. We offer this capability to our financial partners, including consolidators in the financial advisory and wealth management sectors, including Coleman wealth, one of the key players in this arena. This allows them to provide the firms they acquire with a tested investment approach for the benefit of their clients.

Traditional investment models fall short

Although research shows that markets do tend to tend to recover within an average of 42 days following such shocks, often uncertainty still lingers and confidence is affected.

Numerous studies, including a recent report by Schroders, highlights that investors, particularly those in the HNW bracket, are more likely to seek capital preservation and shift towards lower-risk ventures during periods of uncertainty.

In the face of increasing market volatility and economic uncertainty, traditional investment strategies for high-net-worth individuals in volatile markets often fall short of providing the necessary downside protection for HNWs and investors.

Indeed, the traditional 60/40 approach in the financial advisory sector towards risk has been a very generalised “one-size-fits-all” policy. With equities and bonds both seeing downward swings over the last few years, this has left portfolios vulnerable to unexpected swings and diminished returns.

An investment strategy based solely on historical data over excessively long periods often fails to optimise returns relative to the risk taken. What investors need is a strategy that embraces the complexity of modern markets, offering true diversification and protection.

Importance of non-correlated assets

A key aspect of our strategy, which consolidators such as Coleman Wealth use, is providing risk management in investments. We focus on non-correlated assets and have partnered with external discretionary fund managers to develop our approach, which centres around using non-correlated assets to build a balanced portfolio to withstand market shocks.

In times of market distress, portfolios need to include assets that can provide positive returns, or at least provide downside protection when traditional equities and bonds fail. Our keen focus on Sharpe ratios when evaluating portfolio returns helps us maximise returns while minimising risk, and by carefully selecting assets that perform well in varying market conditions, we can craft portfolios that not only protect investors but also aim for above-market performance.

Furthermore, active strategies can help investors capture attractive risk-adjusted returns during bull markets while being well-protected during downturns. Our Irish-domiciled UCIT funds overlay a core portfolio of treasury and corporate bonds with derivative products, offering both diversification and downside protection when equity markets falter.

Our investment ethos centres around four primary investment blocks – Income, Beta, Diversifier and Protection. This model provides diversification and offers a more nuanced approach to managing risk and return, allowing portfolios to be adjusted in real-time according to market conditions. Such flexibility is critical in today’s fast-moving markets, where sticking to a static allocation can mean missed opportunities and increased exposure to risk.

Our prioritisation of risk-adjusted returns alpha strategies means that we integrate advanced hedge fund strategies to serve as a diversifier, managing risk and enhancing returns by capturing yield differentials. This provides protection during market stress, allows for adjustment to shifting market conditions, helps us identify undervalued assets, altogether ensuring investors profit from changes in market volatility.

Wealth stability in the face of increasing turbulence

Ideally, wealth managers deliver the best of both worlds. Our core approach allows our partners, such as Coleman Wealth, to achieve this: above-market performance through well-chosen equities and significant downside protection through non-correlated diversifiers and core protection, resulting in a defensive and secure equity strategy.

We believe that our strategy represents a major step forward in portfolio construction, offering the flexibility, protection, and dynamic asset management necessary to thrive in today’s markets. By moving beyond traditional models and incorporating non-correlated assets and hedge fund strategies, investors can achieve higher risk-adjusted returns while ensuring their portfolios are well-insulated against future market shocks.

In such times of geopolitical instability, such a strategy is more than just a safeguard: it is a path to sustainable, long-term wealth generation.

Jessica Weisman-Pitts

Jesse Pitts has been with the Global Banking & Finance Review since 2016, serving in various capacities, including Graphic Designer, Content Publisher, and Editorial Assistant. As the sole graphic designer for the company, Jesse plays a crucial role in shaping the visual identity of Global Banking & Finance Review. Additionally, Jesse manages the publishing of content across multiple platforms, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.