Scott Haslem, chief investment officer at LGT Wealth Management, said the firm is cautious on risk-taking as it navigates a volatile year for investments marked by geopolitical upheaval and drawdowns across risk assets.

Currently deploying about 20 per cent of its risk budget, Haslem said the private wealth management firm would like to see more positive signals around the US-Iran conflict and oil prices for it to feel confident about increasing risk exposure.

“We’re looking for a less fragile peace deal between US and Iran – that may not be a formal settlement of some form, but it might be a situation where we’re more confident that we’re seeing flows of oils through the Straits of Hormuz, even if there’s a little bit of kinetic military activity,” Haslem said in the latest episode of the Investment Magazine CIO series.

“I’d be looking for oil prices probably settling into a $50 to $70 US range to suggest that we’re not close to tanker bottom levels of oil around the world.”

The firm is also keeping a close eye on a range of macro factors, including rebounds in global Purchasing Managers’ Index (PMIs), and whether indicators such as Producer Price Index and business survey measures of price tensions continue to indicate inflation coming under control.

“Finally, [we’re] really looking for that broadening of earnings that we’re seeing coming through, particularly in the US reporting season and a little bit in Europe as well,” he said.

One thing that has become increasingly critical for CIOs is filtering out the market noise, Haslem said.  

“[But] you can’t filter the noise unless you recognise or have a strong view about what regime you’re in, in order to identify what is noise and what’s underlying trend.”

An important part of LGT’s assumption around the current regime is that the world is in a “multipolar” state, which Haslem acknowledged is a prevalent sentiment.

“It’s one where we’ve got nationalism and populism. It’s one where we’ve got energy transition. So that creates a world we believe that is more dispersed, more diverse in asset performance. You get more volatility, and you get more inflation in that environment.”

But a less appreciated aspect of that regime is that it also throws out many growth opportunities, and it’s investors’ job to direct capital to the right thematics with long-term potential such as defence, energy security and AI.

One example of how LGT is shaping its portfolio to regime characteristics is around interest rate expectations. With heightened focus on supply chain redirection and friendshoring in a multipolar world, the cost of doing business has increased, Haslem said. With that comes the possibility of higher inflation and a lower chance for “interest rates to go back to zero”.

“I’ve got a much nicer base rate to invest in in credit, in private credit, in fixed income, there’s starting yields in that. So when we think about our strategic asset allocation over sort of three to five years, we don’t hate fixed income like everyone did five years ago,” he said.

“So knowing that the regime you’re in is really fundamental to not getting distracted by the noise.”

In a fragmented world of investment, an investor needs to know what they want and perhaps more importantly, know what they don’t want, Haslem said.

“We all see these opportunities come along. We all see things that we wish we’d gained access to, all of those types of opportunities.

“But it’s hard to go past understanding what you’re trying to achieve as an investor, understanding your risk tolerance, understanding how you build a diversified portfolio to capture that, and then really just populating it with fabulous invest investments and trying not to get distracted by the latest, greatest, shiny thing.”