With equity markets starting look more favourable, a multi-asset portfolio approach may help to mitigate the effects of short-term risks in a low-return, high-volatility environment.
That's according to Russell Investments chief market strategist, North America, Dr Stephen Wood, who said investors could be constrained by what he called the "squeeze play" as they move into riskier assets in the hunt for yield.
As they move out of safe haven assets such as cash and bonds, Wood said investors needed to guard against a knee-jerk reaction that could jeopardise their long-term returns. One solution is a "strategically disciplined approach" which allows for exposures to differentiated sources of return, he said.
"Actively managed, globally diversified, multi-asset portfolios are the best shot investors have at avoiding this ‘squeeze play' between negative and riskier assets," he said.
"Set-and-forget is not a strategy that will provide investors with the returns they need in what's shaping up to be a low return environment."
Wood's address to Russell's Australian Investment Summit in Sydney comes after the asset manager announced changes to the fixed income component of its multi-asset portfolios.
He said over the long-term, Russell was viewing equity markets more favourably than fixed income due to "expansionary monetary policies" by central banks around the world, referring to the US Federal Reserve's decision to leave rates at current levels until 2015.
According to Russell, the new fixed income strategies include absolute return bond strategies and exposure to local currency emerging market debt securities.
"While we are favouring equities over fixed interest in the longer term, we believe there is still an important role for fixed income in diversifying portfolios," Russell senior strategist, Asia-Pacific Graham Harman said.
