Managing risk in a very challenging economic environment
Experts: Alexander Chartres, Ruffer
Facilitator: Martyn Laverick, Managing Director, Phase 2 Consulting
State of play
The focus of this presentation was to change a conventional way firms might be looking at structuring their clients portfolios dictator for this current economic environment.
Covid has seen but unprecedented level of physical support at a time when debt was that an all-time high level. The level of debt in the USA alone taken onto support Covid is higher than the total debt spent on the Afghanistan and Vietnam Wars. Across both UK and Germany both countries have seen unprecedented peace time deficits taken on board to deal with Covid.
Alex took us through further slides showing historical statistics of equities and bonds to highlight the potential correlations that used to exist. The thrust of Alex’s presentation was to get people to question the relationship of bonds and equity sectors, what would happen if inflation were to return, and should people now stop to think differently if they believe there is a fundamental change.
The conversation from the attendees was there around how important asset allocation was, what assets were to be held within the portfolios and how often the portfolios are reviewed. The question was asked about how the UK maybe further impacted due to Brexit and Alex’s view was that had already been factored in to the value of the markets. Even if we would have a hard Brexit the view was there will be still plenty of opportunities within the UK.
The question of inflation rose and what was the right time to start buying back into inflation linked bonds. It was agreed that these are key part of the portfolio in the current climate unless the cost of buying government there is escalating exposing a portfolio two recess class could be deemed to be prudent.
Stocktaking by fund managers will become more important with a potential return to cyclical return equities. Some companies have done well out of Covid providing good returns and is now the time to start to reduce your holdings in these stocks and go back to the more cyclical equities.
The key question that the audience was challenged with is do they believe there has been a fundamental shift in how equities related bonds and if so how are the advisors looking to change the structure of client portfolios. If your view is that there is no fundamental change then portfolios will continue to be run very similar way however if the view is that things have fundamentally changed the new strategies would need to be utilised.