Innovation and Inflation: Twin Forces Reshaping Portfolios

This is a tough time to be managing a portfolio. While equities have been volatile and highly responsive to headlines about the conflict in Iran, the assets that allocators traditionally use for diversification and hedging have really not been doing their job. So what's the best way to navigate this environment? Is it time for investors to consider a new approach to balancing their portfolios? And in the meantime, what tactical opportunities might be cropping up. I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm speaking with Christian Mueller Klissman, head of asset allocatio

Thanks for having me.

Thanks so much for having us.

I think so much has happened since the last time we talked, so I'm looking forward to this conversation. Christian, let's start with you. Our listeners, of course, are very familiar with the headline driven moves that we have seen across global equities over the last few weeks and beyond. But let's talk about what's going on with assets like bonds and gold. We typically think of those assets as playing somewhat of a balancing role to equities in a portfolio, but they haven't really been serving that role. So what's going on?

Yeah. You're absolutely right. It's been not easy for multi asset portfolios. And there's a bit of a deja vu similar to 2022, where I guess inflation is the culprit here. We know that a sixtyforty type portfolio can do a very good job in buffering growth shocks. But I think when you have a stagflationary shock or an inflationary shock, I think they struggle. And I think that's what we've seen this time around. I think equities have been, to some extent, doing better than you would expect. And it's really because it's been more of a rate shock than a growth shock. So there were stagflationary e

Alexandra, let me bring you into the conversation. How have you been navigating this environment as an investor? And if you think about the opportunities though that are most compelling, where do you think the tactical opportunities exist?

I would say, just to contextualize tactical right now, the velocity at which the market is moving is it's really eye opening. Opening. So things that you used to be able to step into over a couple of weeks, the p and l materializes in hours. And I would reference tactical opportunities being I do still agree that AI has a lot of opportunity. Velocity I think it's outperformed the index right now to the tune of 14 plus percent. So I would wait for a bit of a better entry point on the public equity side. And I think on the rate side, because there was such a strong conviction in interest rate cu

Christian, what do you think about that? Where are the tactical opportunities with this structural backdrop?

Yeah, as I mentioned at the beginning, it does feel like the growth cyclical exposed opportunities. They've done really well. There's a bit less opportunity there. You have to become a bit more selective. As Alexandra said, you have to be careful about some of the speed of the moves you have here. And I would say that rates relief is still an area where there is more potential because if we do actually get de escalation in the Middle East conflict, we do know that the market has priced a much more lingering rate shock, and there will be opportunities to fade the kind of more hawkish central ba