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In today’s environment of heightened market volatility and policy uncertainty, what role does asset allocation play in building resilience for investors?
Amid the current landscape of increased market volatility and policy uncertainty, asset allocation plays a crucial role in building resilience for investors. It serves as a strategic framework for investing that balances exposure across various asset classes while aligning with an investor’s risk tolerance and return objectives.
By, determining asset weightings and implementing rebalancing methodologies, asset allocation enhances portfolio robustness, enabling investors to better navigate the unpredictable shifts in global markets and policies we are likely to continue experiencing.
How can alternatives complement traditional asset classes, and what diversification benefits do they bring to a client’s portfolio right now?
Alternatives are often viewed primarily through the lens of their performance potential, the illiquidity premium and the ability to potentially provide an enhanced return over public markets. However, their value extends far beyond just return profiles. They are a great complement and diversifier to traditional assets as they provide exposure to different areas of the markets and can potentially tap onto secular trends before they become more mainstream.
Current macro factors such as the stock-bond correlation shifting from negative to positive, heightened policy uncertainty and ongoing geopolitical risks make a strong case for adding alternatives into investor’s portfolios. Alternatives offer unique characteristics such as stable income generation, inflation hedging, regional diversification and tactical opportunities. These features enhance portfolio diversification and resilience, helping investors better navigate market volatility and uncertainty.
Bank of Singapore has introduced its strategic asset allocation (SAA) approach – could you explain how this framework supports clients in constructing long-term, resilient investment portfolios?
Bank of Singapore’s new strategic asset allocation (SAA) approach is designed to help clients build long-term, resilient investment portfolios by delivering more stable returns across varying market cycles. Central to this framework is the integration of uncertainty directly into the portfolio design process. By rigorously stress-testing portfolios against a wide range of historical and forward-looking scenarios, we evaluate asset classes and investments within a comprehensive “portfolio context.”
Our approach encourages “portfolio thinking” – evaluating each investment by its contribution to overall portfolio’s risk and return profile, rather than in isolation. This holistic risk management approach enables us to construct well-diversified portfolios that are better equipped to withstand market volatility and evolving economic conditions, ultimately supporting clients’ long-term financial goals with greater confidence.
Where do you currently see the most compelling opportunities across asset classes, and conversely, what risks should investors be mindful of?
Currently, some of the most compelling opportunities lie in regions and sectors that may be underappreciated or overlooked due to market momentum elsewhere. Investors should be wary of overconcentrating in areas driven primarily by short-term enthusiasm as this could drift away from their strategic asset allocations and increase risk.
Our CIO team has been advocating for regional diversification in equities, maintaining overweight positions in European and Asia ex Japan equities throughout the year to capture attractive valuation and growth opportunities.
Within the alternatives space, we see strong potential in real assets, particularly infrastructure, which has compelling secular tailwinds, offers a stable cash flow profile and provides valuable inflation hedging properties.
With your experience across global markets and asset management, how do client expectations in the UAE and wider GCC differ from other regions when it comes to portfolio construction?
While clients in the UAE and wider GCC share many investment goals with investors globally, their expectations around portfolio construction often reflect regional factors such as a greater preference for capital preservation, a strong interest in wealth preservation across generations.
Over the last three years, investors globally have been used to achieving stellar returns in equities. It is important to manage expectations in the context of longer-term return expectations, stress test portfolios under a variety of possible scenarios (not just extrapolate recent trends) and build well-balanced portfolios.
Looking ahead, how do you see the role of alternatives evolving in client portfolios over the next five years, particularly given structural shifts in the global economy?
Our goal is to help clients think and allocate capital with the same discipline and sophistication as institutions. We believe that growing awareness of the diversification benefits alternatives provide, combined with the emergence of evergreen solutions tailored for the wealth market, will be key drivers behind increased allocations to alternatives in client portfolios over time.
Bank of Singapore Limited’s branch in the Dubai International Financial Centre. (DIFC) is regulated by the DFSA.
