Invesco Global Asset Allocation team adjusts for volatility
TORONTO, Jan. 29, 2015 /CNW/ - Forecasting market movements is notoriously difficult, as demonstrated throughout the latter half of 2014. Few investors could have predicted the collapse in the price of oil to below US$50 a barrel, or that the return on Canadian government bonds would fall below 2%.
"Although 2014's surprises may have been a bit larger than usual, the arrival of unexpected events in financial markets is nothing new," says Scott Wolle, Chief Investment Officer for Invesco's Global Asset Allocation (GAA) team.
Invesco's Atlanta-based GAA team manages Invesco Intactive Portfolios, which are designed to protect and grow investors' capital through changing economic environments. The Portfolios are tactically managed to capitalize on near-term economic changes.
"One thing we can expect is differing performance across asset classes," says Wolle. "We know that some asset classes will do well while others will struggle, but forecasting exactly what happens is quite a difficult task."
Given the unpredictability of the equity, fixed-income and commodity markets, taking a balanced approach across these asset classes may be the key to achieving long-term financial goals.
Divergence in 2014
In 2014, government bonds rebounded from losses in the previous year. Long-term government bonds acted as "shock absorbers" within the Portfolios, providing safe haven against some of the geopolitical and risk-aversion events in 2014, such as the Russia-Ukraine crisis, the rise of ISIS and fears of Ebola spreading beyond West Africa.
Many equity markets posted positive gains despite a weak start to the year. Much-improved economic indicators in the U.S. combined with support from European and Asian central banks to boost equities. Meanwhile, Canadian equities were negatively impacted by falling commodity prices. Commodities started the year off positive as the cold weather propped up energy prices. However, as supply increased, many commodity markets sold off, highlighted by a significant drop in oil prices in the latter half of 2014. Along with the falling commodity markets, the unevenness of world equity markets has led to increased volatility. "Equity markets across the developed world remain very sensitive to further action of central banks," says Wolle. "Given the likely divergent path of interest-rate policy in the U.S. versus
Europe and Japan, this could easily result in continued volatility for equity markets, which was already evident as we closed out the calendar year."
Investing in a well-diversified portfolio may provide smoother returns in 2015, which promises continued uncertainty.
Positioning for the first quarter of 2015
As 2015 gets underway, Invesco's GAA team continues to favour bonds as a means of protection against a meaningful increase in equity-market volatility and persistent weakness in commodity markets.
The team is reducing the equity exposure across most Invesco Intactive Portfolios to be slightly underweight versus the strategic allocations in all markets with the exception of the United States.
The market conditions for commodities continue to be decidedly negative, resulting in underweight positions applied across all of the Portfolios' commodity sub-sectors.
To learn more about Invesco Intactive Portfolios, talk to your advisor or visit www.invesco.ca
About Invesco Canada Ltd.
Invesco Canada Ltd., operating under three distinct yet complementary product brands (Trimark, Invesco and PowerShares), is one of Canada's leading investment management companies. A subsidiary of Invesco Ltd., Invesco Canada's singular focus is on investment management, offering a diversified suite of solutions to institutions, organizations, companies and individual investors across Canada and around the world. Additional information is available at www.invesco.ca.
About Invesco Ltd.
Invesco Ltd. is a leading independent global investment management firm, dedicated to helping investors worldwide achieve their financial objectives. By delivering the combined power of our distinctive investment management capabilities, Invesco provides a wide range of investment strategies and vehicles to our clients around the world. Operating in more than 20 countries, the firm is listed on the New York Stock Exchange under the symbol IVZ. Additional information is available at www.invesco.com.
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