By David Bailin
Chief Investment Officer
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Large valuation differences between markets could eventually resolve quickly. This makes having well diversified portfolios essential.
Tech stocks are finally seeing a tiny bit of “selling pressure” after a run that has surpassed all expectations. Expect further volatility due to the Presidential elections and ongoing pandemic.
The value of diversification for US-centric investors is going to be higher in the decade ahead. US equity valuations are at an historic high relative to others. As the world finds a true solution to Covid, this could provide a catalyst for performance in shares other than technology.
Just as it is impossible to time markets, pick bottoms or tops, or predict election outcomes, it is not possible to know precisely when to diversify portfolios. Covid’s arrival has moved every asset price in the world. Covid’s departure will do the same. Extreme valuation differentials whether between COVID-defensives and COVID-cyclicals or between US and non-US equities are stronger indicators for action.
Valuation extremes may not resolve tomorrow or next month, but capturing such moves is where portfolio “alpha” is found.Read CIO Strategy Bulletin