Diversification remains the cornerstone of asset allocation, investment strategists agreed at Investment Officer’s Portfolio Day in Brussels, as volatility upends assumptions about safe assets.
The panel debate, held last Wednesday in Brussels, brought together leading investment voices from Belgian and international firms. Their message: market turbulence may be the new normal, and a diversified portfolio remains the most resilient strategy.
Intrinsic value
“Everything of value is defenseless,” moderator Hanne Decoutere opened the debate citing a verse by Lucebert.
But even in the chaos of April’s market, there were buying opportunities, emphasized Riet Vijgen, portfolio manager at Leo Stevens Private Banking.
“Prices took a heavy beating in April, and everything was painted with the same brush. Stock prices began to take on a life of their own and became vulnerable. But that doesn’t mean the intrinsic value of each stock was also at risk. That created opportunities. It was a matter of identifying which companies had the largest discrepancy between market price and intrinsic value.”
According to Richard de Groot, who heads the Global Investment Centre at ABN Amro, there was no sign of general panic among clients. “No one said: we’re pulling out. Some clients even added more capital. Others are waiting it out.” The most important thing a bank can do during market turbulence is to communicate extensively with clients, he said, for example through analysis and podcasts. “When clients see that you’re on top of it, that’s reassuring in itself.”
Looking for buffers
In terms of strategic asset allocation, diversification has become even more crucial than it already was, said Luc Vanbriel, general manager of pension funds at KBC. He advised looking beyond just the stock market.
“What I find lacking in Belgian pension funds is an allocation to unlisted real estate or unlisted infrastructure. In a small portfolio, it can be difficult to build that kind of spread. But these are exactly the kinds of assets that can serve as a buffer when the stock markets become more volatile.”
“Diversification is definitely the message, especially under current circumstances where we don’t know what will happen,” said Wim Vermeir, CIO of AG Insurance, who was playing a home game on the AG Campus stage. “I do think the markets are a bit too optimistic right now, given the quick rebound. So I wouldn’t go all-in on stocks. Diversification seems like a solid strategy under all scenarios.”
No more certainties
The only certainty is that uncertainty is here to stay, the CIO panel concluded.
“What was considered risk-free ten years ago is now less so,” said Vanbriel, referring to the high volatility of German government bonds. “The foundations are shaking. Even the dollar’s role as the world’s reserve currency is being questioned. Strategically, it’s crucial to reassess what a safe asset really is. Tactically, in the short term, it’s very difficult to predict current volatility.”
“I hear people say: what was risk-free ten years ago is no longer so. I’d go further: what was risk-free a month ago might not be now,” De Groot added. “But we shouldn’t be too pessimistic. Volatility also creates opportunities.”
Those with a robust long-term investment strategy can weather the storm without too much damage, Vijgen believes. “We need to try to look through the turbulence. Stick to your plan.”
Even in terms of the macroeconomic outlook, despite the commotion surrounding trade tariffs, things aren’t all doom and gloom, according to Vermeir. “This isn’t a disaster scenario.”
Europe or America after all?
Whether European or American equities offer the best long-term investment potential remains an open question. Recently, sentiment has shifted in favor of Europe. Vijgen noted, “The end of American exceptionalism could be an opportunity for Europe to develop its own innovation and independence.”
But Vermeir raised a few caveats. “American tech companies remain the leaders in AI, which is likely the main growth engine of the coming years. What can Europe counter with? SAP and its accounting software, Novo Nordisk with pharma products that can be copied, and luxury giant LVMH, which may have been innovative two hundred years ago. In the long term, the US—with its cutting-edge tech companies—still tells a much stronger story in terms of competitiveness.”