Balancing Risk and Return Amidst Political Uncertainty
TITLE: Balancing Risk and Return Amidst Political Uncertainty
DESCRIPTION: Uncertain elections and unresolved conflicts globally have heightened geopolitical tensions and risks. Group CIO Dan Ivascyn explains why active management and careful positioning are key in today’s markets.
Text on screen: Balancing Risk and Return Amidst Political Uncertainty
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Text on screen: DANIEL J. IVASCYN, Group Chief Investment Officer
The U.S. election now has become quite competitive.
It's going to lead to more volatility up until the actual election and then after the fact. So, we're keeping our portfolios more liquid, flexible, up in quality, but poised to take advantage of more volatility. We've already had some really interesting election outcomes elsewhere in the world. Venezuela jumps out as an area where, not a big investable opportunity set, but an example of political uncertainty out there. Mexico, Brazil, other parts of the world as well.
In addition to elections, there's a lot of other geopolitical tension out there. Middle East situation is far from resolved. The war in Ukraine. Frictions with China. So lots of other areas that can lead to more volatility, more uncertainty.
As an active asset manager, be careful about position sizing and implied conviction, but utilize that global opportunity set because we are in an uncertain world. And when we look at equity valuations today, when we look at some of the valuations in the lower quality areas of the private credit markets, and we even look at some of the lower quality areas of the public markets, we still think that there's some complacency there and that you can achieve returns very close to the base case yields those areas offer without taking the same amount of risk.
And that's the name of the game, is try to provide an attractive, responsible yield with meaningful downside protection, and in the process, generate strong value versus passive alternatives that are out there.
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