Bridgewater Co-CIO shares 3 ways to weather volatile markets

Markets have been volatile in April as investors adjust to the idea the Federal Reserve may not cut rates as much as they had hoped.

So, how should investors go about building a more resilient portfolio?

Karen Karniol-Tambour, Co-Chief Investment Officer at Bridgewater Associates, has some suggestions.

Her first suggestion is to shift asset allocations so that the portfolio has less exposure to stocks.

Her second tip is to "prioritize resilience" within your current holdings. For example, for those with a stock-heavy portfolio, she advises asking "What kind of stocks are likely to be more resilient whatever comes?" to determine which stocks may be worth holding on to given the scenario you are most concerned about.

Karniol-Tambour's third piece of advice is "to say 'whatever I hold, what's going to really do well when everything else falls... things that will really do well when other things do poorly." She admits this is the most difficult tip to put into action, given that involves timing the market.

Watch the video above to hear which region Karniol-Tambour says investors should pay more attention to.

Be sure to check out the full interview with Karen Karniol-Tambour.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Stephanie Mikulich.

Video Transcript

JULIE HYMAN: OK. So what does building a resilient portfolio look like? Is this a return to more traditional stock picking compared to just put everything in an ETF and it'll go up? What does that look like in practice?

KAREN KAMIOL-TAMBOUR: So I'd say the goal of a more resilient portfolio is first and foremost to have a narrow range of outcomes to say, I don't know how the world is going to look, I know that the way the world did look in the 2010s, my portfolio did great. But I don't know how it's going to look in the future. So I want more resilience to different outcomes that might occur. And I think the main levers investors hold to do that.

First of all, they can just shift their asset allocation. Most investors are very concentrated in stocks. And for example, one reason is that bonds were uninvestable, you couldn't make any returns. Whereas today, you can make a lot of your goals through holding bonds with just a little bit of picking above that, whether it's credit spreads or alpha above that suddenly becomes a viable asset class to look at again. And so that's one way of looking at it. Another is just moving away from such extreme concentration in equities to say, how can I be more balanced? Look at issues like commodities, things that can make me more diversified to what might come.

The second thing you can do is you can say, even within what I hold, I can prioritize resilience. So if I'm holding a lot of stocks, I cannot just do stock picking but ask, what kind of stocks are likely to be more resilient whatever comes? So what companies are going to do better if inflation remains more of a factor than it was? Who can pass on those cost increases to their customers? What companies are going to do better regardless of exactly how fast the Fed tightens and what happens to the economy?

And a lot of companies have shifted and who's going to do better and poorly under those environments prioritizing that in stock picking. And the third, which is the most difficult, is to actually say, whatever I hold, what's going to really do well when everything else falls? What are almost tail hedging or things that will really do well when other things do poorly? That's the most difficult because it really is about timing the markets and choosing, when are you going to be able to do something that's going to offset your vulnerabilities?

JULIE HYMAN: And Karen, I know you talked a little bit earlier in the year, or I guess wrote a little bit earlier in the year, about the importance of looking globally as well. We tend to be biased towards the US. The US investors tend to be at least on the retail level. Where should they be looking internationally for opportunities right now?

KAREN KAMIOL-TAMBOUR: The biggest place by far that is ignored by US investors from my perspective is Asia. Because look, the US markets are the biggest in the world, it makes a lot of sense that people are here. The next biggest markets are in Europe, which while somewhat diversifying have an economy, monetary policy, inflation that is much closer to the US. You start going to Asia, whether it's Japan, China, other Asian economies, you get still pretty big markets but ones that fundamentally have different things driving them.

They have an economy, they have a monetary policy, have inflationary conditions that are just different. So there's more room to run, and you're getting much bigger valuation differences. Where you can say very similar companies get better valuations in the US than in other places. If companies just shifted their listing to the US, they suddenly will do better. And so I think Asia has the most opportunities that are untapped, because the markets are just somewhat ignored, to give you really fundamental diversification.

Because you're just investing in a different place with different conditions, with different drivers. So if you're vulnerable to something in one place, it might just not be happening in another at the same time.