Talking Point  

Multi-assets best way to hedge against Middle east geopolitical risks

Multi-assets best way to hedge against Middle east geopolitical risks

Multi-asset funds remain the most popular way to hedge against geopolitical risks such as the Middle East Crisis, according to a latest FTAdviser Talking Point poll. 

The poll asked advisers the following question: “What type of global fund is safest in light of Middle East tensions?”

Almost one in two (47 per cent) said investing in multi-asset funds was the best approach to hedge against geopolitical risks. 

Another 41 per cent said investing in various exchange traded funds could reduce risks, so long as the ETF contains a diverse range of asset classes. 

No adviser recommended thought investing in futures would reduce risks, while about 11 per cent recommended investing in mutual funds as a way to protect their exposure from market volatility 

Global markets have faced a high degree of turmoil recently after the US killed Iranian commander General Soleimani on January 3. 

Iran subsequently conceded that it shot down the Ukrainian International Airlines passenger that came down last week shortly after take-off from Tehran, defying initial claims that the flight came down due to technical failure. 

Global crude, a key commodity and indicator of economic health may also be affected due to ongoing tensions, as much of the world’s oil supply goes through the Strait of Hormuz, and growing tensions could lead to lower supply and higher prices, prompting concerns on how investors can protect portfolios. 

Matthieu Guignard, global head of product development and capital markets at Amundi ETF, Indexing and Smart Beta, said: "In a context characterised by high geopolitical risk, allocating defensively could help reduce portfolio volatility.”

He explained investors could opt for ETFs to add some factor exposure to their equity allocation, by selecting the most defensive factors such as Min Volatility or Quality, that can help reduce the impact of market volatility on portfolio performance.

Mr Guignard added: “In fixed income they can turn to short maturities and US Treasuries or, if they fear some inflation risk due to a potential rise in oil prices, they could decide to select floating rate notes ETFs.”

Sanjiv Shah, chief investment officer at Sun Global Investments explained multi-asset funds are useful in mitigating risks because they usually tend to have exposure to 2-4 asset classes. 

"The Middle East tensions may cause equities to fall but in a balanced [multi-asset] fund bonds may go up especially if there is exposure to commodities.”