August brought mixed signals in global markets. In the US, inflation remained above 2%, while unemployment surprised on the upside (4.2%), fueling expectations that the Federal Reserve will cut rates in the coming months. This generated a curious phenomenon: while short-term rates fell due to expectations of a looser monetary policy, long-term rates remained high, steepening the curve. Global stock markets rose -S&P 500 +1.91%-, but with high dispersion. In commodities, gold reached record highs and oil fell, in line with a more uncertain scenario.

In Chile, the Central Bank had already lowered the TPM to 4.75% at its July 29 meeting, and the increase in electricity tariffs pressured short-term inflation.inflation, which again drove demand for UF instruments.This again boosted demand for UF instruments. Local fixed income benefited in the short and middle part of the curve, while the IPSA rose 8.7%, outperforming its peers.

This environment reaffirms a key messagee: At volatile contexts, diversification is more than a strategy. It is a necessity.

Why do we insist so much on diversification?

In the aftermath of the pandemic, we have seen a significant increase in fixed income volatility, and the correlation between stocks and bonds has turned positive, making the "classic recipe" of diversification (60% stocks and 40% bonds) less effective, which, added to the high concentration of stock market indexes in the US (70% of global indexes), has made the "classic diversification (70% of global indexes), forces us to rethink the traditional approach to portfolio construction.

In this volatile scenario, where interest rates, inflation and geopolitical risks can turn quickly, diversification is not just an academic recommendation: it is a fundamental strategy for building resilient portfolios to protect and grow wealth over time.

An effective way to diversify without operational complexity is through funds of funds.This type of vehicle allows access, in a single investment, to a global portfolio combining fixed income, equities and alternative assets, professionally managed and with a flexible architecture. In addition, it takes advantage of economies of scale by investing aggregate amounts from different clients, which allows access to more efficient institutional series with lower fees than those normally available to individual investors.

This approach allows the construction of balanced portfolios that adapt dynamically to the market environment, minimizing dependence on a single asset or region.minimizing dependence on a single asset or region. In times when economic visibility is low, having exposure to different sources of return - including private strategies, emerging markets and de-correlated assets - can make a difference.including private strategies, emerging markets and de-correlated assets - can make the difference between capital preservation and a structural loss of value.

Looking ahead

Diversification is not only about mitigating risks. It is also about capturing opportunities. In a world where cycles are shortening, shocks are becoming more frequent and global monetary policy is still being redefined, the key is not to predict the future, but to build portfolios that can adapt to it, the key is not to predict the future, but to build portfolios that can adapt to it.

Juan Manuel Alessandrini 

International Funds Analyst Fynsa AGF