Top Strategies for Diversifying Your Investment Portfolio in 2023

As market conditions shift, traditional stock and bond allocations face growing pressures, prompting experts to advocate for more diversified strategies. Investors are being encouraged to rethink their portfolio allocations to safeguard against the heightened economic and geopolitical volatility defining the current landscape.

Understanding the Need for Diversification

Earlier this month, leading asset manager BlackRock emphasized the importance of revisiting the classic 60/40 portfolio split between stocks and bonds. According to them, investors should recognize that the strategies that proved successful between 2010 and 2020 may no longer yield the same results in today’s financial climate.

High inflation rates and fluctuating economic conditions characterize the current market, making it essential for investors to explore supplemental strategies to maintain robust portfolio performance.

Expert Insights on Alternative Investments

Kate Marshall, a senior investment analyst at Hargreaves Lansdown, notes that alternative investments can serve as viable diversifiers, particularly for investors looking to balance risk. However, she cautions that these alternative assets should comprise only a small portion—roughly 10%—of a well-rounded investment portfolio.

Recommended Alternatives for Your Portfolio

To assist investors seeking to enhance their portfolios, Trustnet consulted various fund experts to recommend alternative investment strategies.

Long/Short Equity Strategies

JPM European Equity Absolute Alpha and Premier Miton Tellworth UK Select are two standout options noted by Ittan Ali, a research manager at Titan Square Mile.

• JPM European Equity Absolute Alpha is a long/short equity strategy focusing on Pan-European equities, managed by Nicholas Horne, Ben Stapley, and Matt Jones. This fund has outperformed its sector over multiple timeframes, offering a remarkable average annualized return of 6% with a low correlation to both equity and bond markets.

• Premier Miton Tellworth UK Select, which employs a market-neutral strategy, aims for a return of at least cash +5% with an annualized volatility of 5-7%. The experienced management team lends this fund a strong edge, with a zero correlation to the UK gilt market and a negative correlation to the MSCI World index.

Multi-Asset Strategies

Personal Assets Trust is another recommended addition, managed by Sebastian Lyon and Charlotte Yonge. This fund combines equities, inflation-protected bonds, and gold, aiming for strong long-term returns while maintaining lower volatility compared to traditional equity investments.

Commodities: Gold as a Safe Haven

Fund experts, including Jason Hollands from Bestinvest and Hargreaves Lansdown’s Marshall, have highlighted gold as a crucial asset amidst market uncertainty. Gold serves as a hedge against inflation while providing an “insurance policy” during economic turmoil.

• Recommended ETFs:
  • Invesco Physical Gold ETC tracks prices based on London Gold Market Fixing, while
  • iShares Physical Gold ETC offers direct exposure to physical gold held in vaults.

With gold’s recent price surge of approximately 30% in 2023, experts encourage adding it to investment portfolios as a risk mitigator amid market fluctuations.

Infrastructure Investments

Investing in infrastructure is yet another strategy experts cite. Hollands identifies 3i Infrastructure, which has consistently outperformed financial targets and specializes in providing essential services through unquoted businesses.

Additionally, Marshall recommends Greencoat UK Wind, which invests in operating onshore and offshore UK wind farms. With a resilient annual dividend that increases with inflation, this trust appeals to both income-seeking and diversification-focused investors.

Conclusion: Building a Resilient Portfolio

As the investment landscape evolves, diversifying your portfolio beyond the conventional 60/40 model can prove beneficial. Including alternative strategies like long/short equity, commodities like gold, and infrastructure investments offers a comprehensive approach to navigating today’s unpredictable markets.

By considering these expert recommendations and implementing a well-rounded investment strategy, investors can not only buffer against volatility but also position themselves for long-term growth in a transformed financial environment.

For further insights and updates on investment strategies, stay informed and consult financial professionals to tailor a portfolio that meets your personal objectives and risk tolerance.