State Street’s asset management arm reckons investors need to “think differently” about their investment strategies if they are going to weather volatile markets. 

The Boston-based bank’s investment business, State Street Global Investors (SSGA), released its six month check-up on the 2016 market outlook this week.

As well as recommending a new approach due to market volatility, experts at the firm suggest investors “re-engineer” core exposures to target better risk-adjusted returns amid a persistent low-growth environment. 

“We expect that spikes in volatility triggered by a range of geopolitical factors will continue to characterize markets for the remainder of the year,” said Rick Lacaille, SSGA’s global chief investment officer.

Lacaille says the Brexit vote outcome will be a primary source of volatility, particularly in the short term, but also in the coming months as the process unfolds.

Following the UK 'Leave' Vote in the final week of the quarter, volatility spiked, European equity markets fell and the GBP declined in value.

Investors also had to deal with price swings in January and February relating to the spillover effects of sub-$30 oil prices,

In another mid-year review, Jay Jacobs at Global X Funds, said he expects increased volatility will remain the norm as markets react to central bank policies, Brexit negotiations, and political elections. 

"In addition, growth will remain elusive as the global economy struggles with challenging demographics like slowing population growth and an aging population, as well as fully priced equity markets with many mature and highly competitive industries."

Despite these destabilizing events, Jacobs points out that most asset classes are up this year.

"Around the world, investments have generally benefited from dovish central bank policies as well as a strong rebound in commodity prices."

Within equities, emerging markets (EM) has been the best performing asset class.

In addition, the bouts of intense volatility in 2016 have driven many investors towards less risky assets, resulting in greater demand and therefore falling yields for treasuries.

Alternative investments have been among the best performing assets classes in the first half of the year as demand for store-of-value assets like gold and silver drove a recovery in precious metals. 

In addition, the lower for longer interest rate policies around the world helped bolster income producing alternatives like REITs and MLPs.

SSGA's Lacaille agrees with Jacobs that volatility is likely to remain a feature of markets.

Managed or low volatility strategies hold promise, he reckons and alternatively, target volatility triggers can provide a capped volatility level in portfolios.

“We began the year predicting that political uncertainty and structural factors meant that volatility would be a market feature for some time,” adds Lori Heinel, SSGA’s chief portfolio strategist. 

“This has proven true over the first half of 2016 and may likely continue through the rest of the year.  As ever, the best time to take out insurance is before you need it.”