Managers of multi-asset funds are shifting their portfolios away from equities and increasing their holdings in gold, government bonds and currencies, in efforts to shield returns from what they anticipate will be a volatile Q4.
The ongoing US-China trade dispute, US President Donald Trump's impatience at the Federal Reserve's pace of interest rate cuts and an ongoing slowdown in the global economy are collectively creating a sense of déjà vu for managers who are keen to avoid some of the losses seen at the same time last year.
Q4 2018 was a notably volatile period as the US-China trade dispute first came to the fore, the Fed struck a more hawkish tone and Chinese economic data appeared to weaken.
The VIX - or Wall Street's volatility index - peaked at 24 points on 26 December last year, surpassing the volatility seen at the market bottom of the dotcom bubble.
The last time the so-called fear gauge surpassed its Q4 2018 peak was three days after the Dow Jones index bottomed out at 6,594 points in the throes of the Global Financial Crisis.
Year-to-date, the VIX is down 35.5% but picked up in August owing to a spate of additional tariffs announced on $300bn of Chinese goods by the White House.
Meanwhile, more than $17trn of government bonds are now offering negative yields, with some junk bonds also in negative territory, suggesting investors are increasingly turning to the perceived safety net of fixed income.
Georgina Taylor, co-manager of the Invesco Global Targeted Income fund, said her team are focused on "navigating this precarious economic environment" by "stepping outside of these core asset classes…to find anomalies and value opportunities."
She explained: "The world has repriced for low inflation and interest rates forever, but that is not priced into all markets around the world.
"Even if you look within the European market, Sweden has rates that are quite far above those in the eurozone.
"Within emerging markets there are still some quite high interest rate opportunities, which we can access not just through bonds but through the currency as well, which gives you slightly different exposure."
Co-portfolio manager at Fidelity International Charlotte Harington (pictured) said that, as we head into the final quarter of 2019, "the global growth data looks even softer than it was in 2018, but monetary policy has been easing".
She added: "Some government bond markets are pricing in worse economic conditions than is currently warranted, especially given actual inflation outcomes have not been concerning.
"Equity markets, however, are yet to fully reflect the softening in growth data, leaving us more cautious on the asset class, especially in the US."
As a result, the firm has taken up "significant positions" in gold and gold equities, as "risk-off sentiment and further easing from the Fed should continue to support the gold price", Harington added.