Rules-based investment strategies may cause the market to drive over the cliff Thelma & Louise style, said Brian Singer, head of William Blair’s Dynamic Allocation Strategies team, at the 2017 Conexus Financial Equities Summit held in Syndey, Australia.
Investment Magazine reports that during the summit, Singer told delegates he fears passive and smart beta products are generating fragility in the market and that the employment of dynamic risk capital allocation could create more resilient portfolios.
According to Investment Magazine, Singer told the summit attendees that it’s like locking a car’s steering wheel in Sydney, pointing it to Perth and expecting it to reach its destination. “Investment strategies need to be active and dynamic,” said Singer.
Singer added that smart beta’s strict rules-based approach is like navigating the markets in a straightjacket.
“Dynamic asset allocation is the pendulum swinging right back to where it was in earlier periods,” he said. “[We focus on] riding the tides, navigating the waves and ignoring the ripples.”
Long-term investors need to be prepared to handle the ups and downs of the market. Singer explained that the William Blair Dynamic Allocation Strategies team is “anti-fragile,” highlighting that its investment process has evolved over time as the team researches, implements, and continuously reviews its inputs and frameworks.
At the summit, Singer said investors around the globe are considering risk premia and currency strategies when seeking diversification.
“Everyone wants diversification when the market’s going down,” he said. “We’ve gotten ourselves into a place where the market itself is very fragile.”
And nobody wants to drive over the cliff.