Investors should prepare their portfolios for the return of volatility. But with economic and earnings growth still strong, we do not believe that cash is the right response. Instead, by seeking alternative sources of return, adding downside protection, and investing with a longer-term mindset. investors can reduce drawdown potential, and position for long-term portfolio growth.
Year to date, global equities have finished 17 trading days with a move of greater than 1% up or down, compared with just three in all of 2017. Yet, having traded within a 10% range, they are roughly flat on the year at the time of writing (Fig. 1). Behind this volatile and directionless trading pattern are at least three areas of heightened uncertainty: geopolitics, trade, and interest rates.