Rob Arnott shares his perspective on the ongoing market crisis in a Q&A with Jonathan Treussard. He suggests the time to buy is when investors are at “peak fear.” In the weeks ahead, that point will come and bargains will make themselves self-evident to the disciplined investor. The window of opportunity will be short, but highly rewarding over the longer term.

What impact will coronavirus and market volatility have on your portfolio?

Now is the season for forecasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models.

Key Points

• In a prolonged anti-value momentum-driven rally, it’s easy and natural to forget the long-term value proposition of a rebalancing discipline.
• The evidence and intuition underlying a contrarian value investing discipline has proven merit in cycle after cycle across history.
• By steadily rebalancing against the market’s most extravagant bets, RAFI strategies are positioned to recoup accumulated shortfall at the cycle’s turn, delivering meaningful long-term value-add.
• The continued outperformance of today’s most dominant companies is unlikely to be sustainable in the long run.

The business case for diversity is compelling, but the investment case for diversity is less clear-cut. We suggest, therefore, that investors who seek to promote diversity and its business benefits combine diversity with known drivers of excess returns.

In this issue, Research Affiliates discusses positioning for a potential inflation shock and offers insight into its collaboration with PIMCO to bring forth innovative solutions for investors.

A rational analysis of the emerging markets affirms our belief that now is the time to buy, not sell. The panic being peddled by pundits today is simply not justified.

By combining a tilt toward companies that display financial discipline and that embrace corporate diversity with the return engine of a fundamentally weighted portfolio, we believe investors in environmental, social, and governance (ESG)–related strategies have the opportunity to earn superior long-term risk-adjusted returns.

Assessing our portfolios’ performance is a necessary activity, but by being aware that measurement over shorter time horizons is dominated by noise, we can better resist the natural human instinct to “do something”—typically selling the underperforming investment at exactly the wrong time—if near-term performance falls below expectations.

Part 3 Building Portfolios: Diversification without the Heartburn The wisdom of diversifying investor portfolios across a wide range of asset classes is indisputable. But diversifying client portfolios beyond mainstream stocks and bonds comes with challenges, starting with clients’ unfamiliarity with diversifying asset classes and a propensity for clients to regret diversifying when results disappoint.

The Trump bump reveals market expectations of continuing public policies prioritizing stability, inhibiting creative destruction, depressing yields and wage growth, and inflating a profits bubble. If instead, the Administration delivers reforms that allow creative destruction, invigorate growth and raise returns to capital and wages, then the lofty profits of corporate incumbents will be at risk.