THE LAST few weeks have brought a bout of volatility that has shaken the markets following an extended period of unnatural calm.

Having experienced 18 months of one-way trading upwards, financial markets have reminded investors that they can go down as well as up.

Such a move was long overdue and, while it has undoubtedly been unnerving for investors, the volatility has been nothing out of the ordinary by comparison to other such events in the past.

Indeed, the preceding period of healthy returns with no bumps in the road was more of an aberration than the roller-coaster behaviour that has been witnessed in the last few weeks.

The wider response from the financial press and investor community has been that markets will soon settle down after this blip and restart immediately upon the rewarding path that they have been on in recent years.

While we do not disagree that investors can still reap rewards by remaining invested in certain assets, we do not share the view that we are going back to the blue-sky scenario of the last few years.

Indeed, so much has been transformed in the last couple of months that we feel that a regime change has taken place in financial markets and that investors are going to have to adapt to this new environment.

Our investment strategy reflects our view that because those big economic wheels are turning a more challenging investment environment in being created.

In light of this, a number of steps we have taken over the last 18 months have led to the overall risk of our portfolios being reduced.

There are broadly four key messages that have helped frame our current stance, which is neutral with a hint of caution.

First, when it comes to fixed interest markets we have become increasingly selective in our investments and have been focusing on predictability.

This has helped us to protect against the kind of losses that have been seen in bond markets so far this year.

The next major factor has been to take a long-term view with our equity allocations.

Judging how specific investments might operate over the next 10 weeks or months has become more difficult, so we have embraced with conviction those regions and themes where we feel that the best long-term gains are likely to be achieved.

The recent indiscriminate sell off in equity markets has started to throw up some opportunities.

Another vital component of our portfolios is our hedging instruments, which in basic terms are investments that we feel have a good chance of making a positive return when other investments are losing money.

Finally, while we always preach the virtues of diversification, such a policy has become increasingly important over recent months.

We feel strongly that such an approach is the best way forward, especially as there are likely to be more volatile and testing times ahead.

It is becoming increasingly apparent that a new economic and market dawn is breaking and investors must adapt to maximise the opportunities and reduce the risks that are likely to be thrown up by this new regime.

Our views should not be taken as a call to pursue a totally cautious approach to the years ahead, not least as we still expect both positive economic growth and solid corporate profits in 2018.

Nevertheless, it would be wise for investors to check whether the asset allocations that have served them well over the last few years are still appropriate in the current environment.

Investors may have enjoyed a lengthy period of calm in recent years, but it is clear that the winds currently swirling over global trade are likely to make the next few years a more turbulent period to be investing in.

This is especially so when fiscal policies, interest rates and inflation are factored into the equation.

Tim Wishart is head of Scotland and the north of England at Psigma Investment Management.