The war between Russia and Ukraine has put investment diversification front and centre, according to experts from deVere Group and State Street Global Advisors.
As market volatility continues, deVere founder and CEO Nigel Green said that the importance of diversification had been brought into a “laser-like focus” for investors looking to protect and build their wealth.
“The heightened turbulence triggered by monumental geopolitical developments which have far-reaching consequences mean that now more than ever, investors should be as diversified as much as possible in order to maximise returns relative to risk,” he said.
“This means across geographical, sector and asset class diversification.”
Mr Green noted that, before Russia amassed troops on Ukraine’s border, investors had been steadily moving away from growth stocks into value stocks.
“Investors were increasing exposure in those sectors that could benefit from higher inflation and an improving economy, such as financial, industrial and energy stocks, and out of tech stocks, for example,” he explained.
“But this growth to value rotation has stalled for now as the world is now focused on the fallout from the Russia-Ukraine war. This reminds us how quickly things can change and how essential it is to be diversified.”
State Street Global Advisors EMEA head of investment strategy and research Altaf Kassam suggested that it may be time to consider investments outside of bonds for diversification amid rising stagflation fears.
“Historically, falling bond yields would cushion balanced portfolios when equity markets dropped, but as yield levels have slumped since the global financial crisis, their diversifying qualities have become more limited,” he said.
“As inflation remains high and erodes the value of fixed income assets, the potential for lower yields to offset equity declines going forward seems historically low.”
As a result, the firm has directed its clients to consider alternative diversifying assets including commodities, safe haven currencies such as the US dollar and long duration US treasuries.
“Crucially, it is important that investors don’t overly rely on data and assumptions that shaped the last two decades. Financial markets are in a different place today and regular stress-testing of portfolios with ‘White Swan’ events is recommended,” Mr Kassam added.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
