Faced with an investment environment increasingly driven by politics and a longer-term trend towards all things digital, traditional asset allocation has become a relic of the past and greater patience is needed to ride out volatility. How does one face these challenges? I follow an investment approach that focuses on five pillars.
Macroeconomic and investment environment analysis
What are the major trends that will shape capital markets in the coming years, and how will those trends affect asset returns in the context of the chosen investment horizon? This is the first question I ask myself before embarking on the asset allocation journey. The aim is to understand the direction ‘‘gravity’’ is pulling asset prices: investor portfolios should include assets that would profit from secular tailwinds. Inflation, growth and interest rate expectations, as well as technological developments and geopolitical factors are all relevant topics.
Strategic asset allocation
A strategic asset allocation is an investor’s benchmark allocation. It reflects their risk appetite, preferred investment horizon and major secular trends. The SAA should be tailored to match an investor’s financial goals and ability to withstand the expected investment environment. What is crucial to understand is that the SAA, and not cash, is an investor’s default position. When there is market turmoil, fleeing into cash can be extremely costly – market timing has time and again proved to be a futile exercise. Once out, investors are unlikely to re-enter the market at the right time and tend to miss the rallies that follow.
Tactical asset allocation
In the shorter term, when the immediate outlook for certain asset and sub-asset classes changes, investors may want to stray from their chosen SAA to take advantage of deviations from long-term trends. As the economy accelerates and decelerates, cyclical stocks such as industrials and consumer discretionary tend to, respectively, outperform and underperform the rest of the market. Thus, in accordance with the market cycle, investors may want to increase and/or reduce their exposure to these particular stocks.
However, tactical moves are not always straightforward to implement. This is especially true nowadays as market signals are blurred by political noise.
For example, how should investors navigate something as unpredictable as a trade war, in which the rules of the game can be altered at any moment?
Our approach provides a framework to tackle active tactical investment in this environment. Political factors, such as Brexit or the China-US trade dispute, are considered an external shock and are, by definition, unpredictable. In such situations, investors overreact and the framework suggests to buy risk assets as the risk premium spikes.
When examining tactical moves, to complement the qualitative analysis, I make use of quantitative indicators, which help me to better understand what’s happening in markets. By combining a sound and disciplined judgmental approach with a review of market indicators, market action can be analysed in the context of the broader investment environment in which we operate.
Portfolio construction and implementation
One of the beauties of investing is that different assets do not behave in isolation. They are intricately interconnected and present different correlations in distinct situations over varying time horizons – and play specific roles in an investor’s portfolio.
There is the textbook case of bonds and equities, which, since 1998, are negatively correlated in the short term, providing diversification in turbulent times (although this fundamental investment principle has proven not so reliable in this era of ultra-low interest rates).
Portfolio construction is key and much time and effort should be dedicated to ensuring that it meets objectives
As if it wasn’t complex enough, investors also have to decide how much credit or duration risk is appropriate. They need to take into account currency risk and be mindful of how equity factors such as cyclicality or momentum affect their portfolios, among many other considerations. Equally important is the instruments used to implement the portfolio and the choice between an active or passive, systematic or judgmental approach in the implementation. Studying these relationships and applying them in a portfolio to achieve an investor’s goals is what constitutes portfolio construction. It is an exercise that lies at the frontier between art and science.
One of my fundamental investment beliefs is that portfolio construction is key, and much time and effort should be dedicated to ensuring that it meets objectives.
Risk management
A portfolio is not a static entity frozen in time. As markets move, some up, some down, so do portfolio weights, factor and risk exposures. Consequently, to meet an investor’s return and risk targets, the portfolio must be monitored and adjusted if needed. Keeping a close eye on systematic and specific risk factors and tracking errors versus benchmark is part of it. This step of the process can be difficult to achieve for some individual investors and advice from an investment professional can often help.
Yves Bonzon is the group chief investment officer of Julius Baer
Conflict, drought, famine
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
Shubh Mangal Saavdhan
Directed by: RS Prasanna
Starring: Ayushmann Khurrana, Bhumi Pednekar
COMPANY%20PROFILE
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Killing of Qassem Suleimani
SPECS
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The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
Killing of Qassem Suleimani
PROFILE OF SWVL
Started: April 2017
Founders: Mostafa Kandil, Ahmed Sabbah and Mahmoud Nouh
Based: Cairo, Egypt
Sector: transport
Size: 450 employees
Investment: approximately $80 million
Investors include: Dubai’s Beco Capital, US’s Endeavor Catalyst, China’s MSA, Egypt’s Sawari Ventures, Sweden’s Vostok New Ventures, Property Finder CEO Michael Lahyani
The specs
Engine: 1.5-litre 4-cyl turbo
Power: 194hp at 5,600rpm
Torque: 275Nm from 2,000-4,000rpm
Transmission: 6-speed auto
Price: from Dh155,000
On sale: now
Infiniti QX80 specs
Engine: twin-turbocharged 3.5-liter V6
Power: 450hp
Torque: 700Nm
Price: From Dh450,000, Autograph model from Dh510,000
Available: Now
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Like a Fading Shadow
Antonio Muñoz Molina
Translated from the Spanish by Camilo A. Ramirez
Tuskar Rock Press (pp. 310)
UAE currency: the story behind the money in your pockets
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
UAE currency: the story behind the money in your pockets
The specs
Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
