Risks are increasing as markets react to geopolitical uncertainty and normalising interest rates and volatility. While we maintain a sanguine outlook for stocks and the broader economy, we do not discount potential risks, including the possibility that US-led tariffs may materialise into a full-blown trade war, which could spark inflation and put the brakes on economic growth.
Given these considerations, it is important that investors remain mindful of their risk exposure. A multi-asset strategy like the Janus Henderson Balanced Fund may help to reduce risk, while also providing exposure to long-term market dynamics. This mixed asset fund – which has a combination of equity and fixed income securities – uses dynamic asset allocation to drive returns and has the flexibility to be more defensively positioned during periods when we anticipate higher market volatility.
This dynamic asset allocation sets the fund apart from many of its competitors. We actively monitor and adjust the amount invested in each asset class, conducting intensive fundamental analysis to identify our best ideas, and then adjust the weighting to achieve what we believe is the optimal mix of stocks and bonds for the prevailing investment environment. While we look at holding between 50% and 65% in equities, with the remainder in fixed income securities, we have the flexibility to go outside of these boundaries within the limits defined by the fund's prospectus – depending on market conditions. Conversely, some balanced competitors tend to have a static equity and fixed income ratio, which is typically 60:40, and do not adjust their ratio based on market conditions.
The close working relationship of Janus Henderson’s equity and fixed income teams also differentiates the strategy. While many balanced funds operate with two "sleeves" working independently, we work hand-in-hand, researching different performance indicators, which we believe can provide us with more holistic investment insights. For example, in 2007, while the equity market was strong, our fixed income portfolio analysis identified warning signs about the declining state of the housing market. While the fund still suffered a loss in 2008, this perspective allowed us to make moves to reduce our equity exposure roughly nine months before the market collapse.
These factors, bringing together our combined equity and fixed income perspectives with the flexibility to adjust portfolio weightings, allow us to target long-term returns in a variety of market conditions, with generally lower volatility, as measured by standard deviation. Such a strategy, in our view, can be a useful tool for investors during periods of greater uncertainty.