The Great Rebalancing Act: Portfolio Strategies for a Post-Pandemic Economy

September 21, 2020

AS THE PANDEMIC RESHAPES EVERYTHING from work and play to the U.S. industrial landscape, people will also need to rethink how they build and maintain their investment portfolios, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “The post-pandemic period will create new opportunities and risks,” he notes. “We believe investors will need a higher level of diversification, more frequent portfolio rebalancing and exposure to newly developing themes.”

“The Great Rebalance,” a new report from the Chief Investment Office (CIO), highlights several key factors that may cause investors to begin to think differently about the markets and their investments. For one, there’s the current high level of government debt. Realizing how critical stimulus for families and businesses is to the economy, many investors may become less skittish about it. As low interest rates continue to suppress bond yields, they are likely to gravitate to high-quality U.S. stocks. “And with a greater focus on managing risks as periodic volatility continues, some may favor active rather than passive management for their investments,” says Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank.

Hyzy and Mukherjee, co-authors of “The Great Rebalance,” offer the following ideas for managing your portfolio, moving forward. For more ideas and insights, read the full report, “The Great Rebalance.”

First, review your investments more frequently

Economic recovery from the pandemic is already underway, Hyzy notes, but full recovery will take a while and is likely to include periodic setbacks and volatility. “Investors should review their portfolios more frequently to make sure their strategic allocations haven’t inadvertently shifted and rebalance where necessary,” he says. Rebalancing may also include capitalizing on new investment opportunities as they emerge.

Keep step with a changing world

“The pandemic has accelerated a number of major investment themes that were already underway,” Mukherjee says. De-globalization, for example, means that more companies are moving their supply chains closer to home—with a potential boost for industries such as robotics, automation and 3-D printing.  Remote work and social distancing are creating potential investment opportunities in e-commerce, e-health and virtual reality. Other promising themes range from the rise of smart cities to tech infrastructure and cybersecurity.

Consider precious metals—and other ways to diversify more broadly

Amid low interest rates, a weaker dollar and a rise in economic uncertainties, investors increasingly are turning to precious metals. “For those who would like to hedge against uncertainty, a small allocation to gold could make sense,” Hyzy says. But keep in mind that high-quality stocks and bonds also help during market volatility, so be sure any investment in metals works in concert with your overall portfolio, he advises. “Over the long term, tangible assets such as real estate timber, and farm and ranch land may also help diversify a portfolio.”

Most important, take a disciplined approach

“Markets today are more fragile than in the past, and they move from relative calm to stress at much higher speeds,” Mukherjee says. “This environment can lead investors to take too much risk at market peaks—or to avoid taking any risks and thus miss opportunities.” Such conditions call for investors to establish long-term goals, invest to help achieve them, analyze risks and stick to their strategies even when volatility rises.

For more insights from the CIO on volatility and the markets, tune in to the latest CIO Audiocast.