The Environment is Changing
Head of Strategic Product & Marketing
Western Europe and Latin America
Since the financial crisis, monetary policy has been the stimulus of economic growth and financial market stability.
However, this era is drawing to a close and, as the incremental benefits fade and the schism between the political establishment and the electorate widens, a new unpredictable economic and political framework is emerging.
In this new Age of the Unexpected, investors are facing new opportunities but also an investment environment that is more volatile with potentially lower absolute returns.
In this environment, the risk is primarily that of not meeting one’s investment objective. Thinking of risk in these terms requires a change of the mind-set from a market-led investment approach to seeking out a more outcome-oriented approach. The aim is to identify those investment solutions (or combination thereof) best suited to meet individual investment goals, maximising the probability of achieving the desired outcome.
5 Challenges in the Age of the Unexpected
1. From Monetary to Fiscal Policy:
Core Portfolio Modification for a Regime Change
Reflationary fiscal policy, as the catalyst for expansion, could be positive and bring sustainable growth – or bring uncertainty and volatility. A potential regime change raises many questions, first and foremost, how are core investment strategies adapting their approach to building portfolios to continue to perform in this environment?
2. How to Manage Volatility and Drawdown Risk
Without Foregoing Upside Potential?
In a low return environment, time to recovery in the event of a drawdown will get longer. This makes striving to achieve risk-adjusted returns the primary aim for investors concerned with volatility and drawdown risks. One way of improving the sharp ratio of an investment portfolio is by adding non-directional investment strategies. But how can investors include these strategies in their portfolios and what strategies should they seek out?
3. How to Build Portfolios for a Reflationary Environment?
4. How to Find Sustainable Income?
5. How to Reduce Interest Rate Sensitivity?
In this environment, taking a flexible approach in the search for an optimal yield/short duration profile in all Fixed Income segments is worth exploring in more detail for interest rate risk conscious Fixed Income investors.
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