Rising support for populist and nationalist sentiment is a risk that investors should be mindful of when seeking portfolio diversity, according to UBS.
UBS head of investment strategy for Australia and New Zealand, Tracey McNaughton, says there are three critical attributes investors need to survive a low-growth economy: cost-effectiveness, active management, and a globalised portfolio.
Speaking to InvestorDaily, Ms McNaughton highlighted the significance of rising nationalist sentiment for investors, saying they should be mindful of the underlying fundamentals affecting each country.
“We’re seeing a rise in nationalism, and historically that’s bad for growth,” she said.
Following the UK’s vote to leave the European Union, Ms McNaughton said this is especially relevant and noted that while some European countries, such as Germany, will require less risk premium “others will require more”.
"It used to be that when you were trying to diversify a portfolio, if you needed European equities you could just track the Euro Stoxx index. That may still be the case, but investors should also look through these broad indexes to the different country risks,” she said.
Ms McNaughton continued that investment managers will also need to focus more on “event risk”, such as the outcome of the Brexit referendum or the result of the upcoming US election, and take risk off the table "when appropriate".
“In a world where there is less growth, less return, there is also less room for error. Being conscious of the downside is paramount. Once the event has passed they can redeploy their capital,” she said.
Ms McNaughton said the key to finding value under current circumstances was to look globally, remain active, and focus on cost-effectiveness.
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