Market change is coming: Exactly when, where or how it will happen is unclear, but a growing number of asset owners and money managers are repositioning their portfolios to ride out whatever comes next.
Market pundits, chief investment officers and portfolio strategists interviewed by Pensions & Investments said odds are against a major U.S. or global recession occurring in the next 12 months.
But they broadly agreed that the eight-year equity bull market and the 30-year fixed-income bull market are at late stages in their cycles and vulnerable to disruption.
In response, money managers and asset owners are diversifying their portfolios, allocating more to illiquid strategies to capture returns uncorrelated to public markets and increasing liquidity — especially cash — as a cushion and a source of dry powder to take advantage of dislocations.
The investment team at BlackRock Inc., for example, doesn't see a recession or major market decline "around the corner" but has reduced the spread risk in its portfolios because fixed-income valuations are very high, said Rick Rieder, managing director, global CIO for fixed income and co-head of the New York-based firm's $1.7 trillion global fixed-income platform.
But "if valuations come down, we will go right back in," Mr. Rieder said, noting that the firm's portfolios increased cash holdings to do so if needed.
BlackRock also has reallocated assets to sectors of the high-yield market where valuations are more reasonable, such as non-agency mortgages and increased weightings to emerging markets debt, Mr. Rieder said.