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Investment strategy
February 6, 2022

In turbulent times investors need patience and fortitude

February 6, 2022
David Bailin
Chief Investment Officer and Head of Citi Global Wealth Investments
Steven Wieting
Chief Investment Strategist and Chief Economist
SUMMARY

For many investors, periods of uncertainty – in particular, inflection points when markets turn volatile and pundits theorize about why equities “must” fall – are when they begin doubting the wisdom of staying invested. While it's tempting to back out of the market to avoid downside risk, we believe this would be self-defeating.

  • Over the past few weeks, we have been assessing just what kind of fight the Fed aims to start: how far and how fast does the Fed plan to tighten monetary policy? We posited that the Fed’s stance is bold and may not act to end inflation even if it is enacted. And we warned that too much Fed is now a risk for the economy and markets.
  • So when the Fed threatens to upend a nascent recovery, trying to time the market risks missing out on some of the best days for stocks.
  • We have maintained our 6% overweight in equities, and we believe bonds will underperform until there is more certainty about rates and Fed policy. We continue to favor higher quality income-generating growth assets for an expansion that should continue as a base case view.
  • We will not fall into the market timing trap of making very large reallocations on speculation. That’s why we prefer holding long-term overweights in unstoppable trends than negative real yield bonds. We’ve trimmed some higher risk and lower risk positions to buy Cybersecurity and Fintech shares on early 2022 weakness.
  • We also don’t believe every hedge is created equal in value. Amid high levels of expected market volatility, a few options are possible for investors to take prudent action beyond tactical and strategic asset allocation when attempting to manage risks.
  • Amid high levels of expected market volatility, a few options are possible for investors to take prudent action beyond tactical and strategic asset allocation when attempting to manage risks.
CIO Strategy Bulletin (PDF 746.37 KB)

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