Managing Your Portfolio In Times of Volatility
The closing of March sees us wave goodbye to one of the worst quarters experienced by equity markets since the stock market crash of 1987.

The media is great at instilling fear into us by quoting daily retractions in both percentages and market cap terms. While the Australian share market has fallen more than 20% we are seeing well diversified portfolios, while not immune, fare much better. For the period 1/7/19 to 31/3/20 we have seen the Australian share market fall approximately 21.5%. Our diversified balanced portfolio with approximately 55% share market linked assets and the balance allocated to cash and bonds has experienced a retraction of approximately 8.15% for the same period.

Some common themes in the portfolios we manage for clients have been:

  • Component Of Cash and Bond Funds – In volatile times these asset classes are seen as a safe haven and well supported as investors leave more volatile asset classes. Investors should have a component of cash and bonds in their portfolio with the allocation being dictated by how long your investment horizon is and your immediate need for an income stream.
  • International Equities And Currency – The majority of our clients' international exposure is unhedged to the currency. That means they have been able to benefit from our depreciating currency. When money is invested overseas and our dollar loses value you pick up gains when you convert your investment back into Australian Dollars. The Australian Dollar typically weakens in volatile markets and the current volatility has been no expectation. This has meant unhedged international equities have fallen less than half of our local share market.
  • Absolute Return Funds – These funds play an important part of any portfolio in times of volatility. They have no constraints and also have the ability to make money in falling markets with their ability to what we call going “short”. Going short simply means a profit can be made on a falling stock.
  • Active Management – Fund Managers usually fall into two camps index or active. The current environment now suits portfolios with an active tilt allowing your portfolios to have a strong conviction to quality companies with strong balance sheets, maintainable cashflows in industries less affected by current headwinds.
Its also worthy of note as to where we haven’t deployed funds and why:-

  • Mortgage Trust and Unlisted Property Trust – In good times the income paid from these is very appealing but experience tells us that these become illiquid in times of stress with funds not being able to sell assets to meet investor redemption requests resulting in the funds being frozen.
  • High Yield Securities – Again these provide attractive income prospects in good times but in times of distress can be as volatile as equities as sellers seek to exit contracts with corporates where they have concern around their ability to repay.

In conclusion a diversified portfolio that is well managed will ensure the volatility that you personally experience is greatly reduced in these turbulent times.   

If you would like help reviewing your investment strategy you can contact John Manuel at Prosperity on 02 49077222 or

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee 232 706.

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