At Verger, we don’t just expect market volatility, we prepare for it. We believe a long-term focus and a disciplined, all-weather strategy are key for enduring the temporary emotional discomfort non-profit investors (and, indeed, all investors) experience during jolts of market volatility.
Our all-weather approach is based on Verger’s nuanced understanding of diversification, where we diversify our risk exposures across and within asset classes and focus on the underlying and evolving causes of risk rather than traditional asset class labels and historical returns. This approach to diversification allows us to focus on finding a long-term balance between participating in market upside and protecting on the downside.
Current Drivers of Uncertainty & Market Volatility
Over the last month or so, the U.S. economy and financial markets have experienced heightened uncertainty and volatility. A series of aggressive trade policies, including the imposition of tariffs on key trading partners such as Canada, Mexico, and China, have been central to this turbulence. These measures, intended to address trade imbalances, have led to increased corporate uncertainty, dampened investment sentiment, and raised concerns about a potential recession.
The U.S. stock market has mirrored these economic anxieties. Notably, the S&P 500 has approached correction territory, reflecting investor apprehension over escalating trade tensions and their implications for global growth.
The Benefits of Diversification
While some of the more recently popular U.S. large cap growth stocks have had notable declines this year, other segments of the equity market have performed better (e.g., international equities, value stocks). In addition, certain segments of real assets (e.g., energy equities and gold) have provided good diversification benefits.
We also believe that uncorrelated strategies (more focused on alpha rather than beta) can play a diversifying role in the current environment.
As always, we will continue to watch for opportunities resulting from market dislocations that may allow us to improve the forward looking return profile of the portfolio.
What’s Next?
Going forward, we believe the range of possible outcomes, for both the economy and the financial markets, is quite wide. But this is nothing new. Both recent and storied history is filled with unexpected timing of market cycles and financial events that result in market swings.
Rather than react to every jolt of volatility, our focus remains on moving through rapidly changing conditions with the same focus and discipline we have practiced through previous bouts of volatility and market cycles. This resilience helps ensure we stay on course, regardless of short-term fluctuations, by balancing between participating in market upside and protecting on the downside for our non-profit clients.
We believe that Verger’s strategy is well suited to weather a wide range of market conditions and produce attractive, long-term risk-adjusted returns going forward.
Note: The information above is not intended to represent investment advice, rather, it is intended to express Verger Capital Management’s views and commentary on recent market activity and to provide insight as to how we are taking those activities into account in relation to their potential impact on our managed portfolios.