Five Questions: Catherine Keating on Investing in a Volatile Market
J.P. Morgan’s CEO of United States institutional asset management recommends constructing a portfolio that capitalizes on today’s market turmoil.
By Carrie Coolidge
With leadership changes likely to take place in a dozen countries in 2012, including the U.S. and Chinawhich together represent half of global GDPthe impact on volatility in the capital markets could be significant. Catherine Keating, chief executive officer of United States institutional asset management at J.P. Morgan, which oversees more than $700 billion in client assets, recently spoke with Institutional Investor Contributor Carrie Coolidge about how investors can gird their portfolios and even capitalize on uncertainty.
1. Market turmoil is relentless. How can institutional investors lower volatility without sacrificing returns?
By reducing correlations. For example, real estate has a low correlation to equities and a negative correlation to bonds. Adding real estate to a traditional portfolio over the past 20 years would have both increased returns and decreased volatility. Having income as a portion of total return is also a buffer to volatility. Historically, dividends have accounted for roughly 40 percent of S&P 500 returns. With corporate balance sheets healthy and often cash-heavy today, dividends can be an important component of return on stocks around the world. Then theres managing or minimizing beta [market risk]. Over the past 15 years, a well-constructed....