In an interaction with Kshitij Anand, he underscores the importance of global diversification and strategic rebalancing toward defensive sectors such as utilities, healthcare, and dividend-yielding stocks.He also highlights the need for phased investing and exposure to long-term themes like infrastructure and AI, as investors navigate a rapidly evolving global landscape. Edited excerpts:
Q) Thanks for taking the time out. Geopolitical tensions seem to be escalating across regions. How should global investors interpret these developments from a macro and market perspective?
A) These are testing times for investors. Markets are facing a new war, AI stress, and credit cracks all at once. The US-Israel conflict with Iran has resulted in a sharp surge in oil prices, with Brent crude frequently testing the $100-$120 range.
In many ways, the energy market is the one that matters most right now, as the price of oil is baked into the cost of almost everything. As per a Bloomberg report, there is US$8.27 trillion lying in US money market funds, an all-time high.
So clearly, investors are being cautious in the current environment. However, a lot of this capital will flow back into global financial assets when there are signs of easing in geopolitical tensions.
Q) Historically, markets tend to react sharply to geopolitical shocks but recover quickly. Is it time to diversify globally and which markets are looking attractive?
A) We at LGT have always encouraged clients to diversify globally to reduce concentration risk to a single economy and currency. It is impossible to time the markets, so our approach with clients has been to build resilient multi-asset global portfolios, as diversification can reduce volatility without necessarily compromising returns.
Currently, we see a stronger need to diversify traditional long-only equity exposure with less correlated strategies such as long-short and market-neutral. High-quality dividend yield strategies focused on companies with strong balance sheets and sustainable cash flows also remain a useful way to balance valuation risk and income needs.
Keeping inflation in mind, infrastructure is a core theme for us in 2026, with a focus on investments in global data centres, renewables, power grids, and storage facilities. Our approach to investing in the current environment is to look at quality assets and deploy capital in a phased manner.
Q) How could rising crude oil prices and commodity volatility reshape the global investment landscape?
A) The effective closure of the Strait of Hormuz, which controls over 20% of global oil and natural gas supplies, is causing the most significant disruption to energy supply since the 1970s.
Even the record-breaking 400-million-barrel release by the International Energy Agency (IEA) can only cover the supply gap for a few weeks if the strait remains closed.
Countries in Europe and Asia have opened talks with Iran to negotiate deals to guarantee safe passage for their ships. As a result, the global landscape is shifting from globalisation to fragmentation. The winners of the next five years will be the nations and companies that can secure and control their own supply chains.
Q) What role does rebalancing play during volatile periods when asset prices move sharply due to geopolitical shocks?
A) Given the uncertain outlook, we advocate rebalancing toward defensive exposures such as utilities, healthcare, and quality dividend stocks, while retaining long-term exposure to resilient secular growth themes including AI-linked memory, semiconductor equipment, and power infrastructure. In 2026, we are not just looking for growth; we are looking for “resilient growth.”
Q) How can investors use ETFs to achieve better asset allocation across equities, debt, gold, and international markets?
A) Globally, mutual funds continue to see net outflows, while ETFs draw strong inflows, underscoring the structural shift toward passive and broad market exposures.
Year after year, statistics show that the vast majority of active managers fail to outperform their benchmarks, especially over five- and ten-year horizons. ETFs allow investors to capture market returns reliably across asset classes, at a fraction of the cost.
Q) Which global ETF themes such as technology, semiconductors, or global indices do you believe investors should track in the current environment?
A) In my opinion, one of the best ways to access the global equity market is via an ETF that tracks the MSCI All-Country World Index. This index has a 65% exposure to the US, and the balance 35% exposure to developed and emerging markets in Asia and Europe, across sectors such as technology, healthcare, and financials. It also gives currency diversification as a third of the investment is in non-US dollar securities.
It is a benchmark for equity long-only fund managers and gives investors access to the global equity market in a single investment. To ensure that the index remains a current reflection of the market, MSCI undertakes a rebalancing exercise by doing a disciplined review on a regular basis to add or remove constituents.
Q) Ideally, what percentage of capital should be diversified globally for someone who is 30-40 years old? And if someone wants to deploy fresh capital, what would you advise?
A) Someone who is between the age of 30 and 40 should think about long-term compounding and inflation protection. Investments should be made keeping in mind global megatrends over the next ten years.
Most of the innovation in artificial intelligence, healthcare, and the space economy is happening outside India, so investors should target having an exposure of 20%-25% globally over time.
Diversification beyond traditional asset classes with an allocation to private markets and infrastructure assets should also be considered. There should be some exposure to gold as a hedge against fiscal expansion and confidence shocks.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)