Investment portfolio rebalancing: Does climate change, chip shortage, Fed tapering warrant immediate action?

Talking specific about climate change, Nanda said that it is a long term factor and has the potential to impact investment returns over the very long term.

“So, it should be a core factor in the portfolio construction process,” he said while speaking exclusively to CNBC-TV18.

“The recently concluded UN summit on climate change – COP26, resulted in countries adopting several new measures to address climate change, reduce emissions, promote clean energy, reduce deforestation and nudge governments to fund many of the above-mentioned initiatives. These factors put together have an outsized impact on the future of investments,” he further said.

Hence, Nanda suggested that rather than looking at immediate rebalancing, the investors should incorporate climate change-oriented factors as a core tenet in the portfolio design phase.

“Any portfolio that does not include climate change as one of the key components should go ahead and incorporate that in the investment policy statement,” he told CNBC-TV18.

While talking about chip shortage and the fed tapering, Nanda said that they are very short term phenomena.

“The first of these is mainly due to the COVID-19 pandemic. The supply chain was disrupted as most of the semiconductor is fabricated in Asia. The Fed tapering is again triggered by the pandemic. The Fed began buying increased amounts of bonds to inject cash into the economy. Now that the pandemic is mostly behind us and the US economy is on the path to recovery, the Fed no longer needs the extraordinary quantitative easing measures. So, depending on the pace of the tapering, one could technically rebalance a portfolio only to take advantage of the short term impacts, such as reducing exposure to longer-term bonds in the portfolio,” he said.

Similarly, he added that one could take advantage of the chip shortage and increase exposure to the semiconductor sector, simultaneously reducing exposure to the firms that are heavily dependent on the availability of chips.

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