Investors who seek to manage their risk exposure in developed-market equities should avoid cyclical-growth stocks in favour of defensive and secular-growth stocks, where valuations allow, according to State Street Global Advisors (SSGA) chief investment officer, Olivia Engel.
Also, a recent uptick in bond-market volatility should make investors more careful about their risk exposure across markets, she said.
At the same time, risk was the dominant theme in stock selection over the last few months as investors built their portfolios that was long the quintile of stocks with the highest scores which represented the lowest risk and short the quintile of stocks with the lowest scores (the highest risk).
“Risk was a more significant driver of dispersion in performance across the global equity market than other investment themes, including valuation, sentiment and quality,” Engel said.
The high-risk stocks (technology, industries and energy sectors) were the strongest performers during the first quarter while in March the rebound in high-risk stocks stalled.
The key investment themes to watch, according to SSGA, during the economic uncertainty were defensive and secular growth themes.