The high valuations of many equities and bonds mean that the financial markets could easily experience a major correction. There are lots of potential catalysts that could trigger a large scale sell-off with one of the biggest concerns being the level of global debt that is significantly higher now than it was before the financial crisis 10 years ago.
Higher interest rates in the US and elsewhere would place a major burden on heavily indebted consumers and businesses and could trigger a massive de-rating as the decade of ultra-low rates comes to an end. There are also plenty of other risks that could de-rail the markets including an escalation in the tension between North Korea and the US and its allies.
Whenever anything happens to threaten the markets it is the traditional safe havens that prosper. These include currencies like the US Dollar, Japanese Yen and the Swiss Franc, as well as core government bonds such as US Treasuries and the ultimate store of value, gold.
Most global multi-asset funds will normally provide some sort of exposure to these areas, although the weightings will often be dominated by holdings in more vulnerable asset classes, most notably equities.
If you are concerned about recent events and want to reduce the risk in your portfolio, it could be worth considering more defensively orientated funds. A good place to start would be the global investment trusts that explicitly aim to protect investors’ capital as part of their mandate….
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