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Protecting capital through “rough waters”

18 November 2022

Many investors are having a tough year as financial markets experience one of the most challenging periods on record in recent decades. High inflation combined with Central Banks’ rate hikes to fight it are causing turmoil not just for investors but also for portfolio managers.

Why is that? To put it simply, assets classes are highly and positively correlated, meaning they react to the market in synch with each other. So in an overly hot market, mostly everything is sinking at the same time. With no place to hide, investors are becoming anxious because there seems to be no break in the spiral downward—and because nobody knows when the market will touch the floor.

As the old and well-known saying quotes “Sometimes the best way of winning is not having a good offense but a good defence”. For Nordea’s Multi-Asset Team, this is not just a saying, it is the investment philosophy they have been applying over more than 17 years in all their investment solutions. Indeed, this cautious investment philosophy has proven to pay off in the long run. While many investors and portfolio managers tend to focus on market noise and chase returns, our Multi-Asset Team prefers to put their hard work into understanding the main sources of risks at any point in time. For that reason, they build portfolios from a bottom-up perspective (not from a top-down view), while always maintaining a top-notch level of diversification. This becomes particularly valuable at times like now, when negative market events reveal portfolios’ real exposure towards risk.

Moreover, following this diversification approach towards risks can bring a higher level of protection in down markets while being able to participate in market upside. This translates into higher capital preservation features, which is something that investors are craving nowadays…

Nordea’s Multi-Asset Team manages Nordea’s Global Stable Equity Strategy, a long-only global equity portfolio with a historical tilt towards Value, Quality and Low Volatility. This strategy aims to outperform the market with an overall lower level of risk1. Here, the team selects stable companies with stable underlying fundamentals (e.g. earnings, dividends, etc.) that tend to result in less volatile share price performance. These companies typically have strong pricing power that enables them to pass on cost-inflation with minimal impact on margins1, a feature that is particularly beneficial in today’s uncertain and challenging environment. With an additional focus on valuation, the team avoids low quality and/or very expensive stocks. This investment approach enables the strategy to offer greater protection for investors during the equity sell-offs while still allowing them to participate in market upside.

The team has used its 17-year experience to fine-tune its well-established process and generate a strong track record that can give investors confidence as they consider the market challenges we are currently facing.

1There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.
*according to MiFID definition

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