The potential return of volatility could hurt investor portfolios, meaning a different approach to portfolio construction may be necessary. Read more...
Volatility has traditionally been a major consideration for investors, but in recent years it has been notable largely for its absence.
However, the withdrawal of quantitative easing, combined with geopolitical instability and the possibility of asset price corrections, could mean that volatility is set for a comeback.
The low-yield environment since the financial crisis has led many investors to build portfolios comprising highly correlated assets, potentially leading to significant losses if volatility returns.
Risk parity strategies work far less effectively when correlations increase. Given this, investors may find it beneficial to adopt a more active approach based on country and sector allocation and duration management.