Alternatives, Asset Allocation, Consultants, Private Equity

Russell’s CIO Has Three-Step Advice to Handle Market Correction

Peter Gunning, global chief investment officer, chief executive officer, Asia-Pacific, Russell Investments

Russell Investments helps investors manage downside risk in three ways: by diversifying sources of returns, by using a robust dynamic asset allocation process to guide tactical positioning, and by seeking effective implementation capabilities, according to Peter Gunning, the firm’s global chief investment officer and chief executive officer, Asia-Pacific. He added that the firm has been anticipating a low-return, high-volatility environment for the past two years. “Accordingly, we have been dynamically adjusting our portfolio positioning to manage downside risk,” he said.

Gunning, who is based in Russell Investments’ Seattle office, will participate in a Keynote panel discussion on the outlook for the Alternatives industry at a forthcoming Markets Group alternatives forum—ALTSSEA2019 in Seattle on September 17. He responded via email to questions from IA regarding his outlook on the Alternatives investment industry.

When asked what role alternative assets classes can play in helping an investor weather a potential market decline, Gunning explained that Russell considers alternatives a mainstream component of a diversified asset allocation through any market cycle. “These strategies are combined in a holistic approach and managed dynamically to ensure our clients’ portfolios are responsive to different market environments. Strategies include real assets, real estate, infrastructure, commodities and hedge funds. Alternative asset classes provide our portfolio managers with more levers to help achieve our clients’ investment objectives,” he stated.

Concerning what the future may hold for technology-led market strength and for active asset management, Gunning said: “We are [in a] late [economic] cycle and fading fiscal stimulus is likely to slow the U.S. economy relative to its breakneck pace of 2018. The trade war uncertainty is likely to challenge U.S. and global capex. The outlook crucially hinges on what happens with Sino-American trade policy. For now, we assume a downside risk bias given the asymmetry of what a negative outcome could mean for U.S. equities. Recent warning signals from the yield curve and our Business Cycle Index model are instructive in this regard.” He continued: “Yes, this is a favorable environment for active management relative to passive exposures. While equity markets may still have some potential upside, the window of opportunity looks limited. This places a premium on taking advantage of near-term opportunities, which active managers can nimbly negotiate, while positioning in the long term for the cyclical downturn.”

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