AJ Giannone, CFA, Chief Investment Officer at Allio Finance, joins us to discuss how to best navigate the uncertainty of today’s financial landscape.
Transformations in the Investment Landscape
In the aftermath of the post-financial crisis, the investment landscape experienced a profound transformation. This environment, experts believe, rewarded overly risky investment behaviors. AJ Giannone, Chief Investment Officer at Allio, highlights how this mindset led to the belief that returns could always be leveraged and that risk was merely volatility.
“There was an entire generation of investors who came into the industry during this time who learned the lesson that taking as much risk as possible poses no threat,” Giannone explains. The notion of permanent capital loss was essentially dismissed, fostering a culture where one could “ride the investment tide and ‘buy the dip’ all the way into retirement.”
A Changing Financial Environment
Over the last four years, marked by the onset of COVID-19, elevated interest rates, and supply chain disruptions, the financial landscape has evolved significantly. This transformation directly impacted investors’ market expectations, forcing them to reconsider their investment approach – which may have only worked due to the relatively calm macro environment of the post-crisis and pre-COVID period.
In today’s environment, where higher yields prevail across the board – cash earning 4%+ and high yield earning 6% or more – Giannone explains that while measurements of risk and volatility have declined from the highs of the COVID period, the real risk of permanent capital impairment is structurally elevated.
“Volatility is certainly higher compared to the post-GFC average, but what’s more important than even that is just the actual risk of permanent capital loss from investments that no longer make much sense in this environment,” he asserts.
The Need for a New Approach
The range of possible outcomes in modern investing has widened significantly compared to the more predictable post-crisis period. This expansion is a result of the many uncertainties in our world, things like geopolitical tensions or shifts in the economy, all of which collectively reinforce the need for a new approach.
Navigating today’s investment environment requires a more nuanced understanding, delving into the complexities that arise from these uncertain circumstances. Giannone stresses the need to rethink your strategies and consider the implications as a result of the ever-changing nature of the macroeconomic landscape.
“There are many uncertain outcomes in today’s changing world,” he continues. “Investors must learn to read the macro climate and adjust their approach accordingly.” To accomplish this, Giannone advocates for a top-down, macro-oriented approach, which includes analyzing the global investment landscape for pockets of opportunity and areas of risk. “It’s an exercise that I think has tremendous value in this market.”
The Dynamic Macro Investing Approach
Giannone underscores this approach’s value in the current market environment, referencing Oaktree founder Howard Marks’s observations on a “sea change” and a growing consensus among industry experts. In Giannone’s eyes, these factors have made a dynamic approach to macro investing all the more necessary, positioning it as the new standard required to achieve success. He advocates for using a wide lens and a disciplined, data-driven approach to identifying opportunities.
“If you want to compete in these markets or capture opportunities, you need to leverage modern tools,” Giannone advises. These include massive amounts of data, advanced analysis styles, and the latest in machine learning and artificial intelligence, which enable one person to accomplish what previously required multiple researchers using Excel.
Embracing the New Financial Reality
As a result of the uncertainties brought about in the financial landscape in the last three years, Giannone says the human mind has become acutely tuned to being fearful of taking risks. However, he believes the hard reality is that there is an elevated risk level that exists in capital markets across the spectrum, and investors need to be cognizant and take that into account when they’re making financial decisions.
As the CIO at Allio, Giannone works to help the modern investor keep up with the urgent demands of the current financial climate. Allio is a highly personalized robo-advisory platform that empowers investors to take control of their investment process with institutional-grade tools that help them build highly personalized portfolios and choose from over 4,700 stocks and ETFs, spanning sectors, industries, and strategies.
Allio is one of the only advisory platforms that allow investors to customize their portfolios and automatically rebalance them to keep them aligned with their investment goals. The fintech also exclusively boasts Dynamic Macro Portfolios™ and Managed Macro Portfolios™, which are powered by Allio’s proprietary ALTITUDE AI machine-learning powered investment engine and are built with the top-down approach in mind.
Giannone, who joined Allio in November 2023, previously worked at leading investment firms like Forefront Analytics and Alden Investment Group, acquiring over a decade of experience managing investment portfolios for individuals and institutions. His expertise highlights the shifting dynamics in the investment landscape and the need for investors to adapt to the ever-evolving market conditions.
To delve deeper into Chief Investment Officer AJ Giannone’s strategies and insights, or for a more comprehensive understanding of navigating the urgent needs of today’s financial climate, explore Allio’s website today.
