Investing in volatile markets can be tricky, but one portfolio manager offers tips on how to create a highly diversified portfolio to meet the challenge. “A good portfolio is a highly diversified portfolio, and what I mean by highly diversified is a good portfolio,” Nicolo Bragazza, deputy portfolio manager at Morningstar Investment Management, told CNBC Pro. For example, he explained that stocks tend to perform better when the economy is growing, while bonds—especially high-quality government bonds—during uncertain times. , better investments are made when safety and security matter, Bragaza added in his speech: “If we look at the underlying drivers of different assets, it’s important to diversify across those assets. Therefore, a balanced portfolio should always have something to protect you in case things don’t go according to plan. Investors under the age of 40 looking to grow their wealth should consider investing 80% to 90%. Instead, retirees or older investors focused on wealth preservation “could do a 50/50 split” with the remaining 10% to 20% invested in fixed income, Bragaza noted. The safety of bonds and protection against the short-term risks posed by stocks. In addition to focusing on portfolio allocation, Bragaza also looks for “opportunities in cyclical and defensive areas of the market.” The portfolio manager explains that this is called a barbell strategy and can generate returns regardless of market conditions. The strategy strikes a balance between risk and reward, involving investments in high-risk and low-risk assets. He said U.S. small-cap stocks were one area he was bullish on because they were “pretty cheap compared to historical large-cap stocks.” For reference, the S&P 600 small-cap index is down nearly 1% this month, while the larger S&P 500 is up nearly 4.1% so far this month. Bragazza participates in the sector through BlackRock’s iShares S&P SmallCap 600 UCITS ETF, which invests in 600 U.S.-listed small-cap stocks. The exchange-traded fund is up nearly 8% so far this year, according to FactSet data. Bragaza also pays attention to Chinese stocks. No one stock stands out right now, he said, adding that what he really likes is China’s broad recovery story. Other sectors he’s overweight include consumer staples, health care and utilities, thanks to “their defensive nature and the fact that they’re more attractive from a valuation perspective than the rest of the market,” Bragaza said. , the utility sector’s outperformer, invests through BlackRock’s iShares S&P 500 Utilities Sector UCITS ETF, which invests in “leading” U.S. companies in the utility sector. The ETF is up about 22.1% so far this year, outpacing the 18.1% gain in its benchmark S&P 500 Capped 35/20 Utilities Index, FactSet data shows. ‘Different Kinds of Bonds’ On the fixed income side, Bragaza is looking at a variety of bonds, from high-quality government bonds to junk bonds, as hedging tools for different economic conditions. High-yield bonds and emerging market bonds offer higher returns in strong macroeconomic conditions but are risk-sensitive. On the other hand, high-quality government bonds can provide reliable returns during economic downturns. “A fixed-income portfolio should always contain a diverse mix of bonds to account for cyclicality,” Bragaza said.
