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Lonsec   ⟩   News & Insights   ⟩   News   ⟩   Portfolio diversification in volatile markets
Lukasz de Pourbaix

AuthorLukasz de Pourbaix

TitleChief Investment Officer, Lonsec Investment Solutions

DateDecember 3, 2018



This article is intended for licensed financial advisers only and is not intended for use by retail investors.

Markets have continued to experience volatility over the month. The US market in particular has endured significant volatility with technology stocks bearing the brunt of the turbulence. Until recently the tech sector was a significant driver of US market returns making up over 20% of the S&P 500 Index. Over the last 5 years stocks such as Facebook have seen their share price rise phenomenally from around US$48 in November 2014 to over US$200 in July this year. Since then the stock price for Facebook has declined due to stock specific issues, as well as momentum turning negative on tech stocks generally. We expect market volatility to continue as the market digests the prospect of possible lower growth in the US economy in the future and the potential for further interest rate rises.

In such an environment portfolio diversification becomes increasingly important. This means diversification by investment strategy, such as active, long only, long/short and absolute return, as well as asset class diversification. Lonsec’s Multi-Asset Managed Portfolios are diversified by manager strategy and styles which are designed to perform differently in different market environments. From an asset allocation perspective, we continue to monitor asset valuations and where we are in terms of the business cycle and market momentum. We believe we are at the later stages of the cycle with economic indicators such as global PMIs declining, however overall growth still remains positive hence we have maintained a relatively neutral position to equities. Our main active tilt has been towards alternatives which we have recently reflected in our Multi-Asset portfolios. For portfolios where our mandates do not invest in alternative assets, we have continued to ensure that the portfolios have exposure to managers that have the ability to actively manage their exposure to market risk via their active investment approach.

This article has been prepared for licensed financial advisers only. It is not intended for use by retail clients (as defined in the Corporations Act 2001) or any other persons. This information is directed to and prepared for Australian residents only. This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs.

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