Traditional methods of portfolio construction may change forever

Investment experts are re-evaluating some of their long standing assumptions of global economics as they assess portfolio construction in the COVID-19 operating environment.

In a HUB24 Webinar titled ‘Learn from three investment managers how they get the most out of their managed portfolios in challenging times’ and hosted by HUB24 Head of Managed Portfolios Brett Mennie, investment experts said a more tactical approach to portfolio construction could be appropriate while also managing to long term benchmarks.

The global economy could “be shaken up for a few months to a few years,” said Josh Persky, Head of Model Portfolio Solutions, Multi-Asset Strategies BlackRock. “We are having to think very differently in terms of the traditional methods of portfolio construction.”

As an example, BlackRock is now including new data sources such as traffic volumes and satellite imagery of pollution over China, among indicators of potential economic output and indicators of future productivity.

While risk is always a key consideration, the approach to portfolio construction may need to be more tactical during this period and as result, risk weightings may be impacted.

Lonsec Investment Solutions Executive Director and Chief Investment Officer Lukasz de Pourbaix said the biggest risk currently for to consider in portfolio construction is a second wave of the virus that potentially puts the breaks on the relaxation of isolation measures and a recovery.

“This is plausible and is an x-factor.” He said increased diversification in portfolios compared to six months ago, was a notable change.

Elston Asset Management Portfolio Manager and shareholder, Leon de Wet said time horizons were critical as to what the key challenges were in the future, but believes energy poses a significant opportunity in the three year plus time horizon.

“The energy sector is very attractive, even though there are storage constraints. We are currently overweight to that sector.”

Meanwhile Persky said volatility and managing drawdown could be short term challenges but also highlighted ESG considerations and sustainable investing as likely more significant in portfolios of the future.

Did you miss our Webinar?

Industry experts from Lonsec, BlackRock and Elston discuss how there’re positioning their portfolios in challenging market conditions. Watch the webinar here. 

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