Income & Fixed Interest Commentary - more QE to come?
“This is the start of a significant deterioration in risk assets, and while we may hit a new high in the S&P in the next few weeks it will be materially lower in the coming months.” - By Vimal Gor, Head of Income & Fixed Interest, BT Investment Management
Summary below by Anthony O'Brien
The dominant feeling among investors, according to BT’s Vimal Gore, is that the recent market downturn was an opportunity lost to get long(er).
Gore argues a significant deterioration in risk assets is imminent and that the market has clearly exited the artificially low volatility period which characterised the mid-2000s – and the last few years. He contends, therefore, that it is crucial to employ managers who can make money in this environment. “Our mantra has always been that ‘fixed income portfolios should be negatively correlated to equities in times of stress’, hopefully the last couple of months (and four years) performance highlight that this is a sensible goal to strive to”.
The recent pickup in volatility can be attributed to a number of factors including the Ebola scare, changing US monetary policy and worries about Europe and Japan. Even the Swedish Riksbank chipped in with surprise rate cut to literally zero.
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Frequently Asked Questions about this Article…
According to Vimal Gor from BT Investment Management, there is an expectation of significant deterioration in risk assets. While there might be short-term highs, the overall trend is expected to be lower in the coming months.
Having fixed income portfolios negatively correlated to equities is crucial because it helps protect investments during times of market stress. This strategy aims to provide stability and reduce risk when equity markets are volatile.
The recent increase in market volatility can be attributed to several factors, including the Ebola scare, changes in US monetary policy, and economic concerns in Europe and Japan. Additionally, unexpected moves like the Swedish Riksbank's rate cut to zero have also played a role.
Investors should consider employing managers who can navigate the current market environment effectively. It's important to focus on strategies that can generate returns even when market conditions are challenging.
The Swedish Riksbank's surprise rate cut to zero contributed to the overall market volatility, as it was an unexpected move that added to the uncertainty in the global economic landscape.
The market environment has shifted from a period of artificially low volatility, which characterized the mid-2000s and recent years, to a more volatile and uncertain landscape. This change requires a different investment approach.
Vimal Gor views the recent market downturn as an opportunity that was missed to increase long positions. He believes it signals an impending significant deterioration in risk assets, highlighting the need for strategic investment management.
In the current volatile market, employing skilled managers is crucial because they can identify opportunities and manage risks effectively, ensuring that portfolios are well-positioned to withstand market fluctuations.
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