Michael Blayney: Three investing rules for turbulent times

Emotion can overwhelm strategy when markets are volatile. Pendal’s multi-asset chief MICHAEL BLAYNEY explains three simple rules to keep in mind

• In times of volatility, don’t panic
• Opportunities occur in every market
• Diversification matters, especially in turbulent times

THERE is no silver bullet when investing, and often in volatile times like these, emotion can overwhelm strategy.

Here Pendal’s Head of Multi-Asset Michael Blayney outlines his three rules for investing in turbulent times:

Rule #1: Don’t panic

Have a well thought-out investment strategy, philosophy and process before a crisis starts. 

This helps you stay disciplined despite the noise around you. It’s easy to get swayed by emotion, or worse still, enter a crisis at a risk level that wasn’t right for you to begin with. 

A well thought-out, documented strategy enables you to look at each part of your portfolio and say “yes I understand why I own that assets and downturns are a normal part of cycle”.

A well thought out and documented philosophy and process is crucial to any active decision making during a crisis. It helps you keep a clear head when other market participants feel like a deer in headlights.

Rule 2: Look for opportunities, but at a minimum rebalance

Rebalancing matters.

If you look at history, when you buy things that are cheap, you do well as a long-term investor.

Rebalance your portfolio in a disciplined way, regardless of the headlines and how you may feel. There’s a proven process to top up your holdings at low prices and reduce investments that have done well.

Disciplined rebalancing adds to returns and reduces risk over time compared to letting a portfolio run. 

It doesn’t require superior insights or an army of PhDs and investment analysts to help you — but it does require discipline.

Rule 3: Diversification matters

Be diversified and always include enough liquidity (cash) for your short-term needs. You never want to be a forced seller. 

Each crisis is a little different. The global financial crisis was different to the COVID crisis. This crisis isn’t as violent as the previous two, but there is inflation which we haven’t seen for a long time.

Inflation isn’t good for bonds, but once they get sold off, and yields rise, they become a more useful asset class again.

Equities have come off high levels and rising bond yields affects valuation metrics. While it makes equities look a bit pricey, there will come a time when its right to re-enter the market again.

Diversification means exposure to a range of assets – including those which might not have done as well for a number of years but could outperform in different circumstances.

Diversified investors know that there’s always going to be some part of their portfolio that’s not working as well.

Then the cycle turns, and they need that part of the portfolio. That cycle can take a decade so an investor must be able to cope emotionally with an underperforming asset for a period.

The key thing people do wrong is panic and sell without a clear view of what their strategy is.

Ultimately you want to be the one with enough liquidity, comfortable with your strategy, and able to take advantage of any bargains that emerge.

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About Michael Blayney and Pendal’s Multi-Asset capabilities

Michael Blayney leads Pendal’s multi-asset team. Michael has more than 20 years of investment management and consulting experience. He was previously Head of Investment Strategy at First State Super and head of Diversified Strategies at Perpetual.

Pendal’s diversified funds provide investors with a variety of traditional and alternative asset classes and strategies.

The team — which also includes Allan Polley — manages our multi-asset portfolios with a focus on strategic asset allocation, active management and tactical asset allocation.

Find out more about Pendal’s multi asset funds:

• Pendal Multi-Asset Target Return Fund
• Pendal Sustainable Balanced Fund
• Pendal Sustainable Conservative Fund

Contact a Pendal account manager here