November insight - When is defensive not defensive?

In the aftermath of COP26 in Glasgow, it was great to see the city presented on the international stage. The issue of climate change is, quite rightly, top of the political agenda, and one hopes that the agreement reached at the conference will make a real difference in the longer term. The impact of climate change is real – as demonstrated by flooding in both London and Glasgow in recent months, where extreme volumes of rain (even for Glasgow) have overwhelmed the old drainage systems and infrastructure designed to protect residents from such events.

This idea of ageing infrastructure providing protection that is, at times, no longer suitable for changing times led me to think of the risk inherent in traditional 60/40 “balanced” portfolios, and specifically the role bonds play in these solutions.

Investment portfolios need to have protection from extreme events. Often there are different levels of protection required, which investors may need to consider, depending on the prevailing circumstances. However not every market correction is the same or extreme. In fact, changing your portfolio every time to insulate from the worse-case scenario when markets appear to be volatile, may be more harmful and expensive in the end.