A fund manager for institutional clients shares the offensive and defensive strategies she uses to build portfolios that can navigate all conditions and last generations — plus what all investors can learn from her approach
She noted that equity valuations are on the high end and don't reflect recession risks. Rapidly rising interest rates, sticky inflation, and fear of a recessionThe good news is, rate hikes are not top of mind this year. Inflation concerns have also abated, even if we don't see the Federal Reserve's target of 2% anytime soon, says Sona Menon, the head of the North American pension practice and an outsourced chief investment officer at Cambridge Associates.
Regardless of expectations, Menon emphasizes that it's hard to build a portfolio around any particular macroeconomic outcome. Instead, her goal has been to create balance from the bottom up based on a client's objectives rather than take a top-down approach by trying to navigate recessionary risk. "Once that exposure is diversified in that way, you have a better chance of doing well even when markets are expensive because you hope that these active managers are choosing the right equities in the market and not just investing in the entire market," Menon said.
"For example, in March 2020 when the S&P 500 was down double digits because of the Covid shock, Treasuries did incredibly well. They were up in double digits," Menon said. When investing in hedge funds, she divides them up based on two types of strategies. The first is a growth-oriented strategy through managers who focus on long and short equities that are event-driven. However, this exposure will be down when equities are down, she noted.
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