Worried about the great sell-off? It's time to mix it up, the pros say — here's how

Published Tue, May 31 202211:12 PM EDTUpdated Tue, Jun 7 20228:59 AM EDT

After the brutal sell-off in stocks, a multi-asset approach is back in the spotlight. CNBC Pro asks the experts how to invest to ride out the volatility — and make money in the process. The S & P 500 rallied last Friday to snap a seven-week losing streak, but it did little to mask the massive sell-off on Wall Street this year. The index is down around 13% this year, its biggest drop since 1970. Despite the underwhelming performance of equity markets this year, multi-asset strategies have likely outperformed. "Equity markets globally are double-digit negative year-to-date, so having a multi-asset strategy portfolio has been helpful to performance," Margaret Chen, global head of endowment and foundation practice at Cambridge Associates, told CNBC. The firm manages over $600 billion as of Dec. 31. "To be clear, portfolios are still negative, but they are less negative because assets like bonds, hedge funds and private investments are generally performing better than public equities." There's still a case for staying invested in equities, however — particularly for those with a long-term investment horizon. "If investors were to run away and head for the exit now, they have a high chance of being out of the markets when a recovery inevitably happens," Chen added. While Marcella Chow, global market strategist at JPMorgan Asset Management, believes current levels provide "a reasonable entry point." Diversification is key Nevertheless, many investment professionals believe it is important for investors to have a well-diversified portfolio. "Time and a well-diversified portfolio are an investor's strongest assets, especially in periods of elevated market volatility," Chen said, noting that diversification through a multi-asset investment strategy will result in higher risk-adjusted returns over the long-term. While Thomas Poullaouec, head of multi-asset solutions for Asia-Pacific at T. Rowe Price, said a broader asset allocation and diversifying investments should help mitigate the impact of volatility on a portfolio. "Each investor should consider how time smooths out market fluctuations, which can help to put any concerns into context," he added. Buy bonds? So what should investors hold in their portfolios in this environment of high inflation and rising interest rates? "Long-term investors concerned with inflation risk or seeking real growth could consider a combination of growth-oriented and inflation-sensitive assets in strategic allocations of their portfolios," Poullaouec said. He gave the examples of real assets equities and TIPS. Real assets equities are companies that own underlying assets, such as real estate or commodities stocks, while TIPS refers to Treasury inflation-protected securities issued by the U.S. government. JPMorgan's Chow believes the current environment also warrants a revisit to fixed income. She noted that the recent widening of corporate credit spreads, healthy fundamentals and expected low corporate default rates have brought fixed income into "attractive territory." Investment grade bonds also provide much-coveted downside protection to slowing growth momentum while offering investors a steady income stream, she added. Todd Jablonski, chief investment officer for Principal Global Asset Allocation at Principal Global Investors, is also positive on fixed income. "Appreciate the asset class for what it is – an anchor in your portfolio that should not be overly or unduly unfinished in investors' portfolios." Real assets Real assets are another way to improve inflation resistance in your portfolio, Jablonski added. His firm is currently overweight on infrastructure, natural resources, and commodities. He noted that commodities perform as a hedge against inflation and geopolitics, while a structural supply shortage suggests commodities will outperform regardless of further geopolitical developments. Brian Arcese, portfolio manager at Foord Asset Management, believes that real assets typically hold their real value well and will "nearly always" perform best during inflationary periods. He also flagged that real assets equities — such as miners and manufacturing companies — were solid hedges against inflation, with materials stocks another of his favorites. Arcese also emphasized the importance of having cash available to make the most of any market dips. "We currently hold a meaningful cash position to take advantage of we expect to be a volatile forthcoming period in markets," he added.

A person checks her phone at Wall Street near the New York Stock Exchange (NYSE) in New York on May 27, 2022.

Angela Weiss | AFP | Getty Images

After the brutal sell-off in stocks, a multi-asset approach is back in the spotlight. CNBC Pro asks the experts how to invest to ride out the volatility — and make money in the process.