The way to Tipperary: managing low risk

Justin provided an though provoking insight into three main areas that covered:
• Understanding the pressures in the economy
• Understanding behaviours of the late cycle
• Understanding the keys to building a robust low risk portfolio.

The pressures in the economy

Firstly looking back at the pressures in the market, Justin mentioned the rise in central banks’ balance sheets as a % of global GDP and the quantitative easing (QE) has driven down yields as central banks brought bonds pushing their prices up hence reducing their appeal and pushed investors towards riskier investments while keeping the costs of capital artificially supressed.

With all assets returning between 30-300% over the last 10 years, despite this economic growth as the central banks begin to tighten policy appears that the US is in a late-cycle economic expansion with lingering inflation pressures and still low near-term but rising medium-term recession risks is tricky to navigate for investors.

The behaviours of the late cycle

The current bull market has lasted since 2009 and is one of the longest periods since the war and the worst recession since 1930. But the end if the cycle is drawing nearer every day towards early contraction with the pressure building with underlying US inflation running at it fastest level since 2008 together with quantitative tightening. Now this QE nearly over and the US it reducing its balance sheet and raising interest rates could inject more volatility into capital markets and an increase in the bond supply.

Way forward

Justin urged investors not to take a wrong turn by remaining active (as active investing protects on the downside) plus remaining invested as it’s not about timing the markets, but what important is the time IN the markets. If worried about interest rates then a well-diversified portfolio to spread risk is crucial and also keeping an eye on the fees.

He ended with a quote from “Those that do not remember the past are condemned to repeat it”.