As markets grapple with geopolitical shocks, shifting policy and a growing sense of uncertainty, advisers are being pulled back to one of the oldest principles in investing, diversification. But as Rob Gleeson, Chief Investment Officer at FE Investments, explains during his exclusive interview with IFA Magazine’s Deputy Editor Jenny Hunter, while the message itself is familiar, the environment in which it is being applied has changed dramatically.
A familiar message returns
There is something slightly ironic about the current moment. After years where diversification felt like a drag on performance, it is once again being positioned as the answer. Gleeson is quick to point out that, in reality, the core message has not changed at all. “The world has always been an uncertain place, and we have no real advantage in knowing what’s going to happen next or what might happen in the future.”
What has changed is the backdrop. For much of the past decade, particularly in a market dominated by strong equity momentum, diversification has been a difficult sell. Clients could see where returns were coming from, and anything outside of that narrow group of outperforming assets often lagged behind. As Gleeson puts it, “The truth is, it’s not been a free lunch. It’s been a very expensive one.”
That created a persistent challenge for advisers. They were leaning towards portfolios designed to deliver over the longer term but were being judged on short-term outcomes. Gleeson agrees with that notion and the associated tension, noting that “we get judged quite often by our clients on short-term performance, but we’re trying to build portfolios for long-term resilience.”
Shocks are changing the landscape
That dynamic is beginning to shift, largely because the market environment itself has changed. Since Covid, markets have felt less stable and far more reactive to events. “We’re having what feels like ever more frequent shocks,” Gleeson says, and those shocks are starting to expose weaknesses in traditional diversification approaches.
One of the clearest examples is the relationship between equities and bonds. Historically, the two have worked well together, providing balance within portfolios. But that relationship has become less reliable. “We’re routinely seeing periods now where equities and bonds fall together,” he explains, which undermines one of the core assumptions behind multi-asset investing.
At the same time, even assets that are typically viewed as safe havens are not behaving as expected. “We saw gold fall when the Iran conflict took off. What you expect to happen with the ultimate fear asset, when you have what you think would be the ultimate fear event, didn’t behave in the way it’s expected.” In other words, the playbook is not working in quite the same way.
Gold and the limits of certainty
Gold is a particularly useful example of how unpredictable markets have become. Gleeson is candid in his assessment of how it behaves. “Its value is purely based on vibes. And the more afraid people are, the more valuable gold is. The problem is that what they’re afraid of is unpredictable.”
That makes it difficult to rely on gold, or indeed any single asset, as a consistent hedge. Instead, the emphasis shifts towards holding a broader range of diversifiers, without trying to predict exactly which one will work at any given time. As he explains, “I don’t know which one of these will react to any particular market shock, but the more opportunities I have for something to do well, the better it is for me.”
It is an approach that reflects the uncertainty investors are dealing with.
Selling protection in a growth-driven world
For advisers, the challenge is not just how portfolios are constructed, but how those decisions are communicated. At its core, diversification is about managing downside risk, which can be a difficult message to land when markets are rising. Gleeson describes it perfectly: “Diversification is really selling portfolio insurance.”
It is a useful comparison, but one that does not always resonate immediately with clients. The trade-off is clear. As Gleeson puts it, “You’re saying, your portfolio might not go up as much, but when it goes down, it won’t go down as much.” In a strong market, that can feel like a compromise. In a more volatile environment, it becomes easier to justify, particularly as clients start to experience more frequent drawdowns.
A world in transition
The bigger picture is that this is not just about short-term market noise. There is a broader structural shift taking place. “We’re in a transition period. We’re going from the world before to the world after,” Gleeson says, highlighting the scale of change currently underway.
That transition is being driven by multiple forces at once. Geopolitical tensions, shifts in global power, the rise of China, the impact of artificial intelligence, climate pressures and high levels of debt are all contributing to a more complex environment.
The result is a much wider range of potential outcomes, which naturally feeds through into market behaviour. “The range of outcomes is probably broader today than it has been for a long time.” As new information emerges, markets are repricing quickly, leading to sharper movements both up and down.
Finding opportunity amid uncertainty
Despite this, the outlook is not entirely negative. In fact, Gleeson remains relatively optimistic over the long term. “We were quite bullish on overall economic benefits,” he says, particularly when looking at areas such as technological innovation.
There is also a sense that some of the risks are already reflected in market expectations. “We thought that there was quite a lot of pessimism priced into long-term returns.” That does not make identifying winners straightforward, however.
What it does suggest is that, over time, there will still be growth opportunities. The challenge is that those returns are likely to come with a more volatile journey. “If you want to make 7% a year, you’re going to have to put up with a bit more risk.”
From performance to planning
In this environment, the role of the adviser is evolving. With short-term performance becoming less predictable, the focus is shifting towards planning and outcomes. “This is much more a planning problem than an investment problem,” Gleeson says, reflecting a broader change in how success is measured.
Rather than focusing on short-term performance tables, the key question becomes whether clients remain on track to meet their objectives. “The drawdown itself is not relevant. It’s am I still on track to achieve the outcome I wanted?” That shift in perspective helps to reframe volatility as part of the journey, rather than something to react to.
That does not make the job easier. If anything, it adds another layer of complexity. “I think managing clients through a period of high volatility is a lot harder than managing a portfolio,” Gleeson admits, highlighting the behavioural side of investing.
At the same time, there is a sense that the current environment reduces the risk of being significantly wrong. When uncertainty is high, no single strategy is guaranteed to outperform. It is not about eliminating risk, but about managing it more effectively.
Conclusion
The fundamentals of investing have not changed. Diversification, long-term thinking and risk management remain central to building portfolios that can deliver for clients.
What has changed is the environment. Markets are more volatile, more complex and more uncertain than they have been for some time. That requires a shift in both mindset and approach. For advisers, that means focusing less on short-term performance and more on long-term outcomes. It means helping clients understand that volatility is part of the journey, not a reason to abandon the plan.
In many ways, it is a return to basics. But in today’s environment, those basics matter more than ever.