All Asset All Access: Engaging Opportunities Amid Volatile Markets

Rob Arnott, chairman of Research Affiliates, and Chris Brightman, CEO and CIO of Research Affiliates, share their views on the near-term risks and opportunities in the global financial markets and explain why the current environment gives them confidence in the forward-looking prospects of the All Asset strategies. As always, their insights represent Research Affiliates’ views in the context of the PIMCO All Asset and All Asset All Authority funds. All Asset All Access is published quarterly.

Views expressed here are from Research Affiliates as of 28 February 2022.

Q: What risks or opportunities are you seeing in the global financial markets?

Arnott: To some extent, observers can identify some potential market-moving risks and opportunities. To a far larger extent, they likely cannot. Generally speaking, current market prices should already reflect all that is known (or collectively believed to be true) about the economy plus all the current narratives and assumptions about upcoming risks and opportunities. Prices tend to move when the narratives change, or when what is “known” turns out to be incorrect.

In the midst of the tragedy and tumult of the invasion of Ukraine, elevated fear and market uncertainty seem inevitable in the near term. From an investment perspective, we believe it’s better to ask how current events will change the world as we know it, five years hence. It’s too soon to know. Speculating on future knock-on effects, which are usually only identifiable after the fact, is not usually a productive exercise. At Research Affiliates, our approach is not to seek to be smarter than other observers and investors in forecasting near-term geopolitical or global market shocks, but to be sensible in responding to them as they occur. Geopolitical shocks tend to create new mispricings – opportunities for the contrarian investor – more often than they tend to reward the trend-follower who chases the obvious. For example, we believe that five years hence, it’s hard to imagine that Ukraine will not be a major source of agricultural products for Europe, and Russia a major source of energy.

For the most part, we at Research Affiliates try to assess which markets are cheap and which are expensive and ask where the consensus may be in error. Our approach over the last two decades has been to gauge which markets appear to be overreacting to shocks, respond in a contrarian fashion, and assess which long-horizon opportunities may be under-recognized by most investors.