How should investors, and particularly fiduciaries, deal with the possibility of regime change? The first step is to isolate the argument. The next step is to try to determine appropriate responses, since extrapolating from past scenarios will be of limited use.
We suggested that investors move beyond the “usual suspects”—stocks and bonds—when executing a diversification strategy, particularly if regime change is a real possibility. A more expansive diversification strategy—one that includes commodities, managed futures and other alternatives to conventional assets—might better serve investors wrestling with the additional uncertainty a regime change might bring.