- Investors should consider evaluating asset-class behavior by looking beyond historical averages and medians, and focusing on excess returns, return distributions, and success rates in each phase of the cycle.
- While it may be tempting to adjust portfolio beta1 via the equity/bond call, this asset-class bet is often not well rewarded late in the cycle.
- To navigate the current environment more effectively, we think investors should consider focusing on intra-asset tilts; e.g., moving to more defensive equities, extending duration,2 and adding defensive hedge funds. We believe this approach can help reduce risk while sacrificing less upside if the current phase of the cycle lasts longer than expected.
1 Beta is a measure of the volatility of a portfolio relative to a benchmark. A beta of less than 1.00 indicates lower risk than the market; a beta of greater than 1.00 indicates higher risk than the market.
2 Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
Investing involves risk, including the possible loss of principal.
The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.