But in the recent sell-off, correlations have picked up as the technology stalwart Faang stocks led the broad market sell-off, which in turn saw volatility spike again. What is most important here is the strong performing Faang-led technology stocks are noticeably weakening.
While interest rate sensitive sectors have been struggling for much longer as financial conditions continue to tighten, the upward trajectory of tech stocks is no longer enough to wash out the poor performers, and volatility looks here to stay.
Perhaps most importantly, what does this regime change mean for how investors should be positioned moving forward? With the return of volatility, broad market exposure earning attractive returns is not likely to continue, and of increasing importance will be finding the best managers able to navigate this environment.
While we will maintain our defensive outlook, which includes hedges and exposure to defensive assets like US investment grade bonds, as well as alternatives that have low correlations to traditional asset classes, there will undoubtedly be opportunities that come with an increase in volatility. But we need to be selective with the risks we take, and recognise that a higher volatility environment is likely here to stay.
Eugene Philalithis is portfolio manager of Fidelity Multi-Asset Income