Investing world for multi-asset investors looks vastly different now

The world has moved from a period of low inflation and low interest rates after the global financial crisis to an environment in which the opposite is true, with Covid-19 and the Russia/Ukraine war being among the triggers of this change.

Philip Chandler, head of UK multi-asset at Schroders, said: “We call it the 3D reset: change in demographics, de-globalisation, and de-carbonisation.

"[With the trade-off between inflation and growth having deteriorated] it means that central banks have got a much tougher task ahead of them now than they had in the 10 years pre-Covid.

“That means that we have a return of proper interest rate cycles, as we've seen over the past two years. And it therefore means that you can't rely on a portfolio that was set up 10 years ago for a very different environment. You need to refresh it for the new world that we're in and…you need to find a way of having dynamism in a portfolio.”

This is why, according to Lindsay James, investment strategist at Quilter Investors, to achieve diversification a broader set of assets is needed in a portfolio.

James said: “You need holdings that can benefit both from the current backdrop but also from the converse. So rising and falling inflation, declining and rising bond yields and accelerating and slowing economic growth.

"When we think about diversification and its importance, we need to understand the backdrop.

"The fact there used to be negative correlation between equities and bonds, but really that has that has evaporated over the past decade….so that 60/40 portfolio doesn't really offer the diversification benefits that it once did. You have to think a bit more broadly."

True diversification will also help investors to hedge growth risk as well as inflation risk.

To find out what this diversification might look like, and how multi-asset investors can navigate the new investment environment, click the link above.

Ima Jackson-Obot is deputy features editor at FT Adviser