How the economy performs in the second half of this year will likely come down to the path of the COVID-19 pandemic, which makes managing risk essential for investors, according to industry experts who spoke Thursday during a JConnelly Virtual Media Roundtable.
Amid the remaining economic uncertainty, some of the best investment decisions for advisors and their clients include hedging to give portfolios a safety net; using environmental, social and corporate governance as a tool for risk management; and small caps, they said.
Asked by moderator Crit Thomas, global market strategist at Touchstone Investments, what he sees as the biggest risk for investors that needs to be addressed within their portfolios, Saumen Chattopadhyay, chief investment officer at Carson Group, stressed how important it is to understand how much risk one has an “appetite” for in their portfolios.
“If you think about what has recovered so far, it’s important to understand there’s a new term that is being priced in today in the market called the resilience to pandemic,” Chattopadhyay said. While the tech sector is up about 17%, the financial sector is down about 24%, he noted, adding: “The companies which have a high-quality balance sheet, resilience to pandemic and high and strong cash flows are being priced in.”
There is, meanwhile, “definitely an imbalance … between where the economy is going and where the market is going, which poses the question: Is this really sustainable?” And, based on that uncertainty, he pointed to perhaps the more important question: “Is your portfolio allocation and your risk allocation aligned?”