We're in an environment in which investors need to prepare for near-term risks and position for long-term growth. (ddp)


US investors are also optimistic about investment returns, which CIO thinks is justified, due to the expectation of economic and earnings growth re-acceleration in the months ahead. Amidst lurking tail risks but an overall solid outlook, CIO favors protection that doesn’t require sacrificing significant upside potential. As discussed in Bear market guidebook, investors can take simple steps today to limit downside without missing out on the continuing bull market.


While many US investors have benefited from over-allocating to US stocks in recent years, this "home bias" could hurt returns going forward. At 17x earnings, US stocks aren't expensive, but international equity markets look cheaper and stand to benefit more from the coming global re-acceleration.


CIO also recommends investors manage risk by ensuring their portfolios don't have too much allocated to corporate bonds. On a tactical basis CIO prefers to express its risk-on stance through equities and emerging market hard currency bonds.


Plan, protect, and grow

We're in an environment in which investors need to prepare for near-term risks and position for long-term growth. It might be tempting to try and time the market, but history shows this is almost impossible. CIO recommends investors prepare their portfolios for the current market backdrop by making sure they Plan, Protect, and Grow.


Plan

Our Liquidity. Longevity. Legacy. (3L*) approach to wealth management can help you plan for your long-term goals while reducing the danger of falling prey to poor decisions during periods of market volatility by allocating your wealth into three strategies:


Liquidity. Short-term, lower risk, assets to maintain your lifestyle

Longevity. Growth assets to help improve your lifestyle

Legacy. To help improve the lives of others


Protect

The 1Q Investor Sentiment survey showed that 69% of investors are already hedging the downside risk in their portfolios. In CIO's view, the most effective strategy for managing downside risk is diversification, both within equities (by diversifying across regions) and by holding the right balance of asset classes. To add a more dynamic risk-management layer, investors can consider incorporating quantitative strategies to manage the portfolio's equity allocation.


Grow

After the recent decline in government bond yields, investors are once again focused on finding yield in other parts of your portfolio, while maintaining diversification. CIO highlights opportunities geared to secular growth and long-term trends. For Investors looking to add exposure to growth assets but uncertain about the near-term outlook, CIO recommends phase-in strategies to help them put capital to work while mitigating short-term risks.


*Time-frames may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.


For more details, see: Be prepared: Plan, Protect, and Grow, 17 Apr. 2019.


Main contributors: Justin Waring, Laura Kane, Michelle Laliberte


Product of the Chief Investment Office (CIO).