What will Investment Portfolios look like in 24-25…?

Written by Matthew Walker | 03 Jul, 2024

With the end of the financial year, it’s a good time to take a deep breath and refocus on everything else you need to do in an advice business and plan for how you want to manage things in the year ahead.

At this particular point in time, with everything that is going on around the world, none will be more important than considering what you believe will be the best approach to managing your client’s investment portfolios in the year ahead.

To this end, we’ve read some interesting articles that give some insights into how some of the best-and-brightest are thinking about things. For example:

An opinion piece by Dr Raphael Arndt, CEO of the Future Fund published on 15 June 2024, which you can click the link for to read in full, with a quick summation below:

The world has been calm for decades. Ever-increasing global trade, integration of supply chains and international financial flows generated a dividend in the form of strong economic growth and increasing standards of living.

The calm has ended. The world has changed. Investors need to change with it.

The Future Fund quickly followed this up with a Position Paper entitled: Geopolitics – the Bedrock of the New Investment Order, which again can be read in full by clicking the link, with a brief summation below:

We have previously written about A New Investment Order where we discussed a range of paradigm shifts that we believe are significantly impacting global financial markets and investment portfolios. These shifts include inflation regimes, climate and decarbonisation, populism, deglobalisation, technology disruption, and changing asset class correlations.

In our view this new investment order means the longer-term investment environment is expected to be quite different: more complex, more volatile, and ultimately more challenging for investors. One in which forward-looking returns will be more difficult to earn, and which is giving us cause to refresh how we invest to continue to achieve our investment purpose.

And in a brave call, we read that John P. Hussman, Ph.D is literally “ringing the bell” with his article You Can Ring My Bell, in which he surmises:

I may as well just say it. Based on the present combination of extreme valuations, unfavourable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week. Barring a wholesale shift in the quality of market internals, which are quickly going the wrong way, any further highs from these levels are likely to be minimal. In contrast, current valuation extremes imply potential downside risk for the S&P 500 on the order of 50-70% over the completion of this cycle.

Should you change your investment position here? We haven’t. Whether or not we’re at a market peak, we were already defensive based on extreme valuations, unfavourable internals, and overextended conditions. If you’re a passive investor, my intent is not to encourage you to abandon your discipline. What I do believe, however, is that this is an extraordinarily good moment to examine your risk exposures and to take them seriously. If your notion of passive investing doesn’t allow for a realistic possibility of a market loss well in excess of 50%, or a decade or more in which the S&P 500 lags Treasury bills, you’ve not only decided to be a passive investor, you’ve decided to ignore history. So, whatever your discipline, examine your risk exposures.

In my 30 years as an adviser, I wish people had been braver and clearer with their views and warnings about the risks in the market. Well, here they are in black and white. Perhaps we really are in a new investment world after all.

At Dynamic Asset we constantly consider these issues when managing portfolios on behalf of the Dealer Groups and Advice Firms we work with. To this end, while it’s hard to know when exactly markets will turn and what the outcome will be, it should be apparent to everyone that wants to avoid potentially significant drawdowns then you should be investing differently.

For example, at Dynamic Asset our portfolio mandates are flexible enough to allow us to invest dynamically into differentiate assets classes offering uncorrelated returns, including:

Gold and precious metals – as a hedge against geopolitical risk, inflation and black swan events,
Commodities – as liquid ‘real assets’ that can also hedge against inflation, but more importantly at this point in time have very attractive risk-return fundamentals based on basic issues like increasing demand and inadequate supply,
Short-Duration Bonds and High-Grade Credit – where there is some good running yields, but with the longer-term outlook far from certain duration is still a big call, and with credit we are starting to see the cracks appear in lower grade paper.
Alternatives – is a broad church, but includes anything other than traditional stock and bonds, which makes them attractive diversifiers, because they are not stocks and bonds.
Selective Equities – it has been interesting to see the bifurcation of markets, in which the headline indices have been driven by a select few large cap tech stocks while the rest of the constituent stocks lag. Amongst these there are some very interesting opportunities, if one considers fundamental analysis a reasonable place to start.
- Passive Investing – as a side note, if we see a reversal, or even just a reversion to the mean, for some of the drivers of markets in the last year or two, then passive investments that do not undertake any price discovery or analysis could find themselves challenged after so many years in the spotlight.

When you sit down and consider the state of the world and where you believe will be best to invest for your clients there are many issues to consider, not the least will be WHO can invest differently to best navigate the New World Order? Who in ‘retail land’ can invest like the Future Fund?

At Dynamic Asset, we can.

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