- The coronavirus pandemic is changing markets in ways that will warrant new investing behaviors, says Chris Hyzy, the CIO for Merrill and Bank of America Private Bank.
- In an exclusive interview with Business Insider, Hyzy explained how investors should rejigger their diversification, asset allocation, and portfolio rebalancing practices in a post-coronavirus world.
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The world will look very different when the coronavirus outbreak recedes and strict social distancing measures are lifted.
Financial markets will also not be the same on the other side, according to Chris Hyzy, the chief investment officer of Merrill and Bank of America Private Bank, which collectively manage $2.7 trillion in assets.
For now, investors are seeing how the worst economic numbers since the Great Depression and steep earnings declines are confirming their worst fears.
The good news, in Hyzy's view, is that the recovery should begin in the third and fourth quarters.
He expects pent-up demand to be relieved soon afterwards during 2021 as life returns towards normal. After that, a "new frontier" that is defined by the lasting transformations brought about by this pandemic will begin. The changes will range from more widespread telecommuting and e-learning to new financial-market trends.
"A whole slew of new behaviors are going to be here for a really long period of time," Hyzy told Business Insider in an exclusive interview. "What does that do to consumer spending, corporate confidence, etc? That's the key question in what we call the new frontier."
Pending the definitive answers to that question, Hyzy recommends three changes investors should make in order to thrive in the so-called new frontier.
1. Diversification within asset classes should be of the utmost importance.
Prior to this crisis, the emphasis was on allocating to different asset classes based on one's investing goals. But moving forward, the nitty-gritty of each topline investment in a portfolio will be more crucial, according to Hyzy.
Within stocks, it will be extremely important to buy "iconic brands" that people trust and latch onto, Hyzy said. He added that companies that pay or grow their dividends and rely less on stock buybacks will be critical.
2. Investors will need a higher allocation to stocks than before.
This is simply because the bond market is not producing the kind of cashflows for investors that it once did.
As uncertainty surrounding the coronavirus pushed Treasury yields towards zero, multiple strategists flagged the allure of stocks with high dividend yields.
3. Investors must consider rebalancing more frequently.
This could practically mean changing the weightings of various asset classes up to four times a year instead of once, Hyzy said.
He foresees this happening because of all the stimulus being injected through the CARES Act, Main Street Lending Program, and other government assistance. These initiatives have the potential to spur a comeback in inflation, which would trigger more volatile price moves for various asset classes.
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