Economic expansion will continue into 2019, but volatility will remain elevated. As a result, investors might see more risk and less return than they have in recent years, said a new report by Cambridge Associates.
The investment consulting firm's 2019 outlook report suggests that institutional investors should be neutral in risk-taking for the upcoming year relative to their long-term policies. Investors should also be cautious because "there is plenty of geopolitical event risk on the horizon," said Celia Dallas, chief investment strategist at Cambridge, in a phone interview.
"Today, it still makes sense to be neutral on risk assets even if earnings expectations come down to their historical averages," Ms. Dallas added.
Because of that, Cambridge said it is taking a balanced approach for 2019 compared to this year when the firm thought diversification made more sense, especially due to the tax cuts.
Cambridge is also said it is seeing improvement on the credit pricing. Although investors should still be selective, the company said it is seeing interesting opportunities in structured credit, particularly within collateralized loan obligation debt and equity.
The company, however, is "not very excited about real assets," Ms. Dallas said, due to "so much volatility in oil and other resource assets." So investors should favor lower-risk, income-producing strategies when allocating to real assets.
As we progress in the cycle, Ms. Dallas noted that investors should begin thinking about how their portfolios might hold up during a recession sooner rather than later.
"It's always difficult to implement a plan during difficult times," she said.