Positioning your portfolio amid uncertainty

Positioning your portfolio amid uncertainty

Developments over recent weeks have proved a wake-up call to markets after a complacent start to the year.

The trigger was the failure of Silicon Valley Bank and other US regional banks, followed by the Credit Suisse crisis. In both Europe and the US, the subsequent repricing of core yields and changes to market expectations regarding central bank actions have been significant. Bond volatility reached its highest levels since the Great Financial Crisis of 2008, while equity volatility also spiked, although to a lesser extent.

Amid this heightened uncertainty, investors may wish to favour a more defensive stance in their portfolios.

To this end, we have set out below some ideas for consideration:

1. Look at short-term bonds as a way to reduce portfolio risk

Swift action from central banks, to reinforce liquidity access and stabilise markets, indicates that they are taking this turmoil seriously, while at the same time continuing to focus on inflation with rate hikes. They will now be even more data dependent, with little or no policy guidance. This, in turn, will likely keep bond volatility high as inflation is still above target levels.
In this environment, short-term bonds may help reduce portfolio risk while the positive yield they provide means they have scope to outperform cash. ​​​​​​​

2. Consider adding diversification and protection with gold 

Looming risks around economic growth and still-high inflation underline the importance of gold as a safe haven asset. Gold has long been lauded as a potential hedge against uncertainty and, in the toughest of times, has provided a welcome diversification benefit that few assets can match. 

Gold returns during tough times

Total Return of Equities and Gold (in %, US Dollar) during the 10 worst years observed in the last 30 years 

2.	Consider adding diversification and protection with gold

Source: Bloomberg, Amundi. Data as at 31/03/2023.  The performance of each asset class is represented by its corresponding representative MSCI (for Equity) and Gold is represented by the gold price return. Past performance is not a reliable indicator of future performance.

ETF investment options for consideration
The LYXOR NYSE ARCA GOLD BUGS (DR) UCITS ETF provides exposure to short-term movements in the price of gold by including companies that do not hedge their gold production beyond 1.5 years.

3. Think about using longer-dated treasuries to mitigate US recession risks

The recent uncertainties and the prospect of a further slowdown in economic activity provided for a recovery in US Treasuries over the past month. Market anticipations of rate cuts as early as this summer also acted as a strong support for longer duration bonds. In addition, although uncertainty remains as to how the developments of the past few weeks will weigh on underlying economic growth, globally speaking, we believe that central banks are set to pursue a less aggressive course. 

Exploring US government bonds may be a way to provide some stability to portfolios at a time of tightening financial conditions in the markets and lending standards in the economy.

3.	Think about using longer-dated treasuries to mitigate US recession risks

Source: Bloomberg, NBER, Amundi. Data as at 23/03/2023. 
Past performance is not a reliable indicator of future performance

Knowing your risk
It is important for potential investors to evaluate the risks described below and in the fund’s Key Information Document (‘KID’) or Key Investor Information Document (“KIID”) for UK investors and prospectus available on our websites www.amundietf.com.
CAPITAL AT RISK - ETFs are tracking instruments. Their risk profile is similar to a direct investment in the underlying index. Investors’ capital is fully at risk and investors may not get back the amount originally invested.
UNDERLYING RISK - The underlying index of an ETF may be complex and volatile. For example, ETFs exposed to Emerging Markets carry a greater risk of potential loss than investment in Developed Markets as they are exposed to a wide range of unpredictable Emerging Market risks.
REPLICATION RISK - The fund’s objectives might not be reached due to unexpected events on the underlying markets which will impact the index calculation and the efficient fund replication.
COUNTERPARTY RISK - Investors are exposed to risks resulting from the use of an OTC swap (over-the-counter) or securities lending with the respective counterparty(-ies). Counterparty(-ies) are credit institution(s) whose name(s) can be found on the fund’s website amundietf.com or lyxoretf.com. In line with the UCITS guidelines, the exposure to the counterparty cannot exceed 10% of the total assets of the fund. 
CURRENCY RISK – An ETF may be exposed to currency risk if the ETF is denominated in a currency different to that of the underlying index securities it is tracking. This means that exchange rate fluctuations could have a negative or positive effect on returns.
LIQUIDITY RISK – There is a risk associated with the markets to which the ETF is exposed. The price and the value of investments are linked to the liquidity risk of the underlying index components. Investments can go up or down. In addition, on the secondary market liquidity is provided by registered market makers on the respective stock exchange where the ETF is listed. On exchange, liquidity may be limited as a result of a suspension in the underlying market represented by the underlying index tracked by the ETF; a failure in the systems of one of the relevant stock exchanges, or other market-maker systems; or an abnormal trading situation or event.
VOLATILITY RISK – The ETF is exposed to changes in the volatility patterns of the underlying index relevant markets. The ETF value can change rapidly and unpredictably, and potentially move in a large magnitude, up or down.
CONCENTRATION RISK – Thematic ETFs select stocks or bonds for their portfolio from the original benchmark index. Where selection rules are extensive, it can lead to a more concentrated portfolio where risk is spread over fewer stocks than the original benchmark.
CREDIT WORTHINESS – The investors are exposed to the creditworthiness of the Issuer.

AMUNDI PHYSICAL GOLD ETC (the “ETC”) is a series of debt securities governed by Irish Law and issued by Amundi Physical Metals plc, a dedicated Irish vehicle (the “Issuer”). The Base Prospectus, and supplement to the Base Prospectus, of the ETC has been approved by the Central Bank of Ireland (the “Central Bank”), as competent authority under the Prospectus Directive. Pursuant to the Directive Prospective Regulation, the ETC is described in a Key Information Document (KID), final terms and Base Prospectus (hereafter the Legal Documentation). The ETC KID must be made available to potential subscribers prior to subscription. The Legal Documentation can be obtained from Amundi on request. The distribution of this document and the offering or sale of the ETC Securities in certain jurisdictions may be restricted by law. For a description of certain restrictions on the distribution of this document, please refer to the Base Prospectus. The investors are exposed to the creditworthiness of the Issuer.


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