Chapter 1
Asset allocation in a turbulent world
Summary
Heads of trading ranked global inflation rates as the most significant factor impacting their asset allocation strategies.
Geopolitical followed closely while domestic economic growth and corporate earnings growth were also cited as substantial influences.
In response to global events, firms are employing a multifaceted approach. Strategies range from partnering with cyber intelligence firms to embedding geopolitical scenarios into investment valuations.
Others are focusing on enhancing inflation analysis, adopting global liquidity mapping tools, and offering bespoke investment vehicles tailored to specific market environments.
The most pressing challenges in adjusting asset allocation include the unpredictability and duration of global events (46%) and the difficulty of balancing risk and return objectives (43%).
Additionally, maintaining liquidity during volatile periods and accessing reliable information were cited as significant hurdles.
Rank the following factors in order of how much they impact your traditional asset allocation strategies
Global inflation rates
Central bank interest rate policies
Geopolitical instability (e.g. conflicts, trade wars)
Domestic Economic Growth (GDP)
Corporate earnings and credit spreads
Changes in regulatory policies
Technological disruptions
Investor sentiment and market volatility
Environmental, Social and Governance (ESG) factors
Fluctuations in commodity prices
“It would be great to have some data to compare these results with last year, but I would speculate that the top three options are higher - particularly geopolitical and central bank interest rate policies – on recent US and Euro elections and divergent central bank policies. We've been dealing with global inflation since 2021 and 2022 so no surprise it is a top three."
Neal Rayner, Head of U.S. Fixed Income Trading, Janus Henderson
“Staying on top of headlines, which seem to be coming a lot quicker than they have in the past, which affect markets can help to mitigate against the strongest impacts. Engaging with news disseminators, and those that can concisely put forward the implications of those headlines, allows us to think about our portfolios in light of current events."
Neal Rayner, Head of U.S. Fixed Income Trading, Janus Henderson
What have been the biggest challenges when adjusting your asset allocation strategies in response to global events? (Respondents were asked to select three options)
Predicting the duration and severity of events
Implementing changes quickly enough
Balancing risk and return objectives
Maintaining liquidity during volatile periods
Accessing timely and accurate information
Dealing with rapid shifts in investor sentiment
Navigating regulatory constraints
Quantifying the impact of unforeseen events
Managing portfolio diversification effectively
Aligning internal stakeholders on strategy changes
"These responses are in line with the previous two questions, where global political and macro events are taking a larger influence than normal. They're always a big influence, but a larger influence than normal on the way portfolio managers and traders are navigating the markets."
Neal Rayner, Head of U.S. Fixed Income Trading, Janus Henderson
