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Protect investment gains with diversification amid market volatility


Global political and economic turbulence is constant. But whilst there are often tremors, in recent years there have been more sizeable shocks, sparking more pronounced volatility across financial markets.

By Roddy Hogarth, Head of Distribution, RAW Capital Partners

In the aftermath of the Covid-19 pandemic, major economies around the world have been grappling with high inflation and aggressive central bank interventions. Meanwhile, geopolitical tensions and conflicts – particularly in Europe and the Middle East – have dominated headlines over the past two years. The result has been a more challenging climate in which investors have been trying to manage their portfolios and strategies effectively.

There has been some improvement recently – the UK stock market hit a record high of 8445.80 on 15 May, and the S&P 500 has gained 11% since the start of the year as central banks have paused their rate hikes. However, the outlook remains uncertain as economic and political headwinds loom for the rest of 2024.

Therefore, it is crucial for investors to understand the challenges facing their portfolios and to then consider which proactive measures could be taken to manage risk and achieve their desired goals over the coming months.

What challenges are on the horizon for the remainder of 2024?

Firstly, with major geopolitical players like India, the UK and the USA all holding important elections this year, there is likely to be an increase in volatility across the global investment sector as the markets react to the twists and turns of those election cycles. In particular, the battle between Joe Biden and Donald Trump will hold particular significance for investors.

Elsewhere, the Russian invasion of Ukraine wages on, while the ongoing conflict in Gaza is threatening to spill over into wider military engagements. Both conflicts are showing little sign of de-escalating, and both have a direct influence on the global oil markets, which can impact the performance of a variety of the major asset classes. Uncertainty will remain so long as geopolitical tensions remain so fraught.

More generally, the world’s central banks find themselves at a crossroads. Inflation remains high in some areas of the global economy but has been brought under control in many domestic indices. So, domestic growth concerns linked to a higher cost of borrowing could encourage the US Federal Reserve, European Central Bank and Bank of England to cut rates this summer – pressure is certainly mounting on them to do so. In turn, we could see major shifts occurring in the currency and bond markets as central banks relax their monetary policies at different times and at different paces.

Why does diversification remain so important?

Clearly, uncertainty is likely to dominate the markets for the rest of this year, so it’s important that global investors remain adaptable if they are to protect their investments – diversification is a key strategy to doing so.

By diversifying across uncorrelated asset classes, territories, and sectors, investors are better placed to minimise potential losses in volatile markets and capitalise on growth opportunities elsewhere. This includes building a portfolio of both traditional and alternative investments.

Balanced against these options, investors could also look at alternative investments such as real estate, private debt, and other non-traditional assets to reduce volatility, provide down-side protection, and protect recent gains.

Diversification can help investors weather economic uncertainty, even in the face of market volatility that could dominate the markets in the coming months. Whether aiming for reliable long-term growth or managing risk while seeking to benefit from the opportunity market volatility presents, diversification is a useful tool in an investor’s toolbox.

Therefore, striking a balance between traditional and alternative investments, while embracing diversification across sectors and geographies, could be the key to success in today’s uncertain investment landscape.

Roddy Hogarth is the Head of Distribution at RAW Capital Partners. RAW Capital Partners is a Guernsey-based specialist investment manager primarily responsible for managing the RAW Mortgage Fund, a Guernsey open-ended collective investment scheme that offers attractive and consistent returns, a high level of capital security, and total fee transparency.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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