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3 Investment Strategies to Ride Out the Pandemic

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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?”

There is currently “a lot of opportunity [in] taking a hedge in your portfolio,” he told viewers, adding: “Right now, we’re in a situation [where] investors are asking the question: Should I hedge my portfolio? My answer would be yes, this is a time where you think about hedging. Either the normal hedge with your portfolio allocation or you take an explicit hedge with the derivative instruments or any other instrument for that sake. It is important that you provide that safety net in your portfolio, that shade in the portfolio because the market and the economics are moving in two different directions.”

Meanwhile, small-cap stocks are “very attractive,” according to Eddy Augsten, managing director at Concurrent Advisors, adding that future economic proposals from Democratic presidential candidate Joe Biden “might change our perspective around value, cyclical and small-caps.”

Also, “after what we’ve just gone through in terms of the pandemic, ESG has really become a … very nice tool for risk management,” Augsten said. “We are looking to apply ESG to a number of different parts of our allocation,” he noted. In light of recent social unrest, he said: “Being able to look through a company and understand how they’re treating their employees, how they’re treating the customer, what their corporate language is or corporate culture is [all] becomes very important.”

On the governance side of the ESG equation, he said: “When we started thinking about reallocating to countries overseas and China and Asia and things like that, governance becomes very important. Then we start thinking about the election [and] you start thinking through the idea of infrastructure and energy and clean energy and all these aspects which, again, make ESG very favorable because it starts positioning us towards what the future might look like over the next couple of years.”

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