Risk Management in 2026

masonic

kempiejon said:

Have these active funds consistently beaten the index idea long term? My own asset allocation has been moving this year adding more gold, gilts, FTSE100 and commodities. The global index keep going up but I am delighted that my newer choices of gold and ftse100 are outpacing the S&P500 etf.

If the focus is on risk management, then beating the index should mean having significantly lower loss potential without giving up too much of the upside. I'm not aware of any 100% US/Global equity funds that could be relied upon to fall meaningfully less than the S&P500/Global index should there be a equity crash. If achieving that means moving to mixed asset, then that can be done without wrapping the whole thing in a layer of active management fees.

ivormonee

My feeling is that probably the best risk management one can undertake it to stick to their diversified strategic asset allocation framework whilst shielding themselves from the noise.It is most probably likely that disappointment awaits those succumbing to the temptation to tinker with their portfolio in reaction to the guidance and strategies that everyone else* is "recommending".

* refers to CEOs, managers and advisers of investment firms, financial commentators in the media, investment advisers in other circles, and so on.

chiang_mai

masonic said:

kempiejon said:

Have these active funds consistently beaten the index idea long term? My own asset allocation has been moving this year adding more gold, gilts, FTSE100 and commodities. The global index keep going up but I am delighted that my newer choices of gold and ftse100 are outpacing the S&P500 etf.

If the focus is on risk management, then beating the index should mean having significantly lower loss potential without giving up too much of the upside. I'm not aware of any 100% US/Global equity funds that could be relied upon to fall meaningfully less than the S&P500/Global index should there be a equity crash. If achieving that means moving to mixed asset, then that can be done without wrapping the whole thing in a layer of active management fees.

If the S&P were to fall say 10%, a global fund containing 60% equities, and which does not feature Mag 7, should surely fare better than say an S&P Index, both in depth of the fall and recovery time.....or am I missing something here?  The only way I can think of to model this scenario is using peak to trough drawdown figures which show respective drawdowns of 17% and 9%, almost half as much.

https://global.morningstar.com/en-gb/investments/funds/F00000PGVL/risk
https://global.morningstar.com/en-gb/investments/funds/F0GBR06HX4/risk

Looking at the downside capture ratio's of those two funds, the argument is less pronounced but still clear. The index has a downside capture rate of 93 whereas the global fund shows 72. 

chiang_mai

ivormonee said:

My feeling is that probably the best risk management one can undertake it to stick to their diversified strategic asset allocation framework whilst shielding themselves from the noise.It is most probably likely that disappointment awaits those succumbing to the temptation to tinker with their portfolio in reaction to the guidance and strategies that everyone else* is "recommending".

* refers to CEOs, managers and advisers of investment firms, financial commentators in the media, investment advisers in other circles, and so on.

The problem with that approach is that there's information and then there's noise and trying to understand which any statement might be, isn't easy. Case in point.....was the news about bonds, useful information or noise? Whichever it was, it can't be ignored. 

 "Thanks for pointing this out. That's a really good observation. I wasn't aware that they'd done that and it's food for thought".

So when the CIO of a major investement bank tells us to avoid S&P Index trackers because they are over valued and tech heavy, is that information or noise!  Worse still, is it a selfish ploy designed to steer us towards their more expensive products, as some suggest? 

I think this is where individuals need to make individual assessments and ask whether it is, a) applicable to them. b) the argument is sufficently solid to warrant action, and, c) the downside risk of not taking action, is acceptable. 

masonic

chiang_mai said:

masonic said:

kempiejon said:

Have these active funds consistently beaten the index idea long term? My own asset allocation has been moving this year adding more gold, gilts, FTSE100 and commodities. The global index keep going up but I am delighted that my newer choices of gold and ftse100 are outpacing the S&P500 etf.

If the focus is on risk management, then beating the index should mean having significantly lower loss potential without giving up too much of the upside. I'm not aware of any 100% US/Global equity funds that could be relied upon to fall meaningfully less than the S&P500/Global index should there be a equity crash. If achieving that means moving to mixed asset, then that can be done without wrapping the whole thing in a layer of active management fees.

If the S&P were to fall say 10%, a global fund containing 60% equities, and which does not feature Mag 7, should surely fare better than say an S&P Index, both in depth of the fall and recovery time.....or am I missing something here?  The only way I can think of to model this scenario is using peak to trough drawdown figures which show respective drawdowns of 17% and 9%, almost half as much.

https://global.morningstar.com/en-gb/investments/funds/F00000PGVL/risk
https://global.morningstar.com/en-gb/investments/funds/F0GBR06HX4/risk

Looking at the downside capture ratio's of those two funds, the argument is less pronounced but still clear. The index has a downside capture rate of 93 whereas the global fund shows 72. 

Who is to say whether the S&P500 has a greater loss-potential now. It hasn't historically. I rather suspect in a major US crash, whatever the cause, it will have far-reaching consequences, whereas an emerging markets crash or European crash would leave a global portfolio worse off then a US one. That's not a reason for not diversifying though.

• During the Trump Tariff crash the S&P500 fell further from peak to trough than a global index fund, but if you measure from just before the US election result they fell equally (so the extra was just wiping off the prior Trump premium). The value fund you mention didn't fall as far.
• During the Covid crash the percentage peak to trough was near identical. The value fund you mention fell further.
• During the Global Financial Crisis, S&P500 (as measured by HSBC American Index) fell a little over 35% peak to trough, about the same as as the FTSE World Index.
• During the Dotcom crash, both fell around 50% (but I could only measure from 1st November 2000).

chiang_mai

masonic said:

Who is to say whether the S&P500 has a greater loss-potential now. It hasn't historically. I rather suspect in a major US crash, whatever the cause, it will have far-reaching consequences, whereas an emerging markets crash or European crash would leave a global portfolio worse off then a US one. That's not a reason for not diversifying though.

• During the Trump Tariff crash the S&P500 fell further from peak to trough, but if you measure from just before the US election result they fell equally (so the extra was just wiping off the prior Trump premium).
• During the Covid crash the percentage peak to trough was near identical.
• During the Global Financial Crisis, S&P500 (as measured by HSBC American Index) fell a little over 35% peak to trough, about the same as as the FTSE World Index.
• During the Dotcom crash, both fell around 50% (but I could only measure from 1st November 2000).

If those things are true and correct, using the two funds I linked above, why did the S&P Index only return 8.34% over the past twelve months whilst the global fund returned 29%? Both funds went through the same downturn yet the global fund fell less far and recovered more quickly.

masonic

chiang_mai said:

masonic said:

Who is to say whether the S&P500 has a greater loss-potential now. It hasn't historically. I rather suspect in a major US crash, whatever the cause, it will have far-reaching consequences, whereas an emerging markets crash or European crash would leave a global portfolio worse off then a US one. That's not a reason for not diversifying though.

• During the Trump Tariff crash the S&P500 fell further from peak to trough, but if you measure from just before the US election result they fell equally (so the extra was just wiping off the prior Trump premium).
• During the Covid crash the percentage peak to trough was near identical.
• During the Global Financial Crisis, S&P500 (as measured by HSBC American Index) fell a little over 35% peak to trough, about the same as as the FTSE World Index.
• During the Dotcom crash, both fell around 50% (but I could only measure from 1st November 2000).

If those things are true and correct, using the two funds I linked above, why did the S&P Index only return 8.34% over the past twelve months whilst the global fund returned 29%? Both funds went through the same downturn yet the global fund fell less far and recovered more quickly.

I was referring to US index vs global index funds. Your global value fund did better in the Trump Tariff crash, but worse in the Covid crash. It doesn't have the history to go back to gfc or dotcom, and I don't know how it would compare with a US value fund (which would be the like for like comparison).

Value has had a resurgence recently after a long period of underperformance. The explanation for your metrics is recency bias, which is why I don't pay much attention to such metrics.

I have a small-cap value tilt on my portfolio as a further diversifier, but while I don't expect it to help much with drawdowns, it does reduce concentration.

fizio

I will stick with my 2 fund S&P plus global tracker strategy as it has been a profitable buy-and- forget model for ages and any USA corrections have been merely short term blips in the last decade. Obviously it depends on personal circumstances and risk tolerance so may not be the answer for other 

Bostonerimus1

chiang_mai said:

Interesting and potentially useful comments about investment risk management in 2026, from the CIO at Morgan Stanley, intended for their wealth management clients.

Portfolio Moves to Consider

Investors should remember that bull markets are meant to be ridden, not timed. That means: focus on staying invested, rather than trying to predict the exact moments to buy or sell.

Nevertheless, investors should temper their exuberance. The Global Investment Committee continues to recommend an actively managed approach to investing, focusing on maximum portfolio diversification and risk management. We see this approach as far more prudent than passive exposure to a cap-weighted benchmark index like the S&P 500, which is expensive and highly concentrated in a few outsized tech companies.

Also, consider adding exposure to “real assets,” including real estate, commodities and infrastructure. We also like select hedge funds and are warming to 2026 new vintages in venture capital and growth-oriented private equity alongside select secondaries.

Meanwhile, in credit, consider focusing on distressed and asset-backed strategies.

https://www.morganstanley.com/insights/articles/stock-market-outlook-bull-market-risks-2026

:

...and how much do they get paid for this sort of banal stuff. 

chiang_mai

Bostonerimus1 said:

chiang_mai said:

Interesting and potentially useful comments about investment risk management in 2026, from the CIO at Morgan Stanley, intended for their wealth management clients.

Portfolio Moves to Consider

Investors should remember that bull markets are meant to be ridden, not timed. That means: focus on staying invested, rather than trying to predict the exact moments to buy or sell.

Nevertheless, investors should temper their exuberance. The Global Investment Committee continues to recommend an actively managed approach to investing, focusing on maximum portfolio diversification and risk management. We see this approach as far more prudent than passive exposure to a cap-weighted benchmark index like the S&P 500, which is expensive and highly concentrated in a few outsized tech companies.

Also, consider adding exposure to “real assets,” including real estate, commodities and infrastructure. We also like select hedge funds and are warming to 2026 new vintages in venture capital and growth-oriented private equity alongside select secondaries.

Meanwhile, in credit, consider focusing on distressed and asset-backed strategies.

https://www.morganstanley.com/insights/articles/stock-market-outlook-bull-market-risks-2026

:

...and how much do they get paid for this sort of banal stuff. 

She is the Chair of the global investment committee at Morgan Stanley Investment Bank, the fourth largest investment bank, so her salary is likely to be in the millions of dollars.