There are encouraging signs that Italy may have reached the peak in its Covid-19 cases, as containment efforts and lockdown measures take effect. Nothing can be guaranteed, but there is hope the rest of Europe may follow the same pattern, but with a lag of a week or so – depending on the approach to lockdown.
In the US, however, the story is somewhat different, with an alarming surge in new cases. The world’s largest economy was slow to lockdown its population – still failing to do so in some areas – leading to a rapidly rising number of new infections and deaths.
Outlook for the economy and markets:
We believe including alternatives in an institutional, long-term portfolio helps diversify risk factors, or where the returns are being made by your holdings. This can help create a robust portfolio that is more resilient to challenging markets, such as the current one.
We have been diversifying our portfolios for some time, meaning they include a range of alternatives, including hedge funds and private market securities.
Note the following aims with our use of alternatives:
Allocating to alternatives does have its challenges, however. Some hedge funds, for example, are not as hedged as they might sound, and are therefore not immune to the type of markets we have seen recently.
It is important to forensically check whether the investment outcome you receive is the one you expected in this or any other scenario, and compare all manager returns to their peers, rather than the general market
Market volatility is here to stay, in our view, until the Covid-19 virus is contained globally. But there are opportunities in the dislocations it provides.
We believe managers with a long-term view – including those in private markets – have the opportunity to weather the current storm with a range of diverse holdings to help dampen overall risk.
For more information on any of the above points, please contact your Mercer representative.
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