DEFINING MOMENTS | MANAGING RISK
BY IAIN TAIT
Over the past decade we’ve noticed a phenomenon where investors have been taking increasing amounts of risk in exchange for ever lower returns. Following the 2008 financial crisis, Central Banks attempted to stimulate the economy with rock-bottom interest rates and unprecedented monetary policy.
These actions caused bond yields to drop to all-time lows, effectively forcing investors like you into riskier investments, in search of higher income.
But as the current market cycles grows longer in the tooth, you may now be holding a potentially dangerous cocktail of assets that are riskier than they may have first appeared.
Traditional approaches to managing risk in this type of environment often mean disposing of riskier assets and moving into safer havens, such as government bonds or cash. The problem is that neither offers you a reasonable return in the current climate.
We believe an effective approach is to hold high-quality, compounding assets that can generate sustainable returns for the future. The further we get in the market cycle, we may still want to remain fully invested, but we want to gradually dial down the underlying risk content in portfolios.
So with that in mind, we gravitate towards high-quality, shorter-duration fixed income and we slowly increase cash levels.
In short, we keep dancing but we move closer and closer to the exit door.
At London & Capital, we believe the key to successful investing is through active risk management, rather than by chasing returns. We follow a disciplined investment process that is shaped by our dynamic approach to risk and aims to ensure portfolios contain the right amount of risk for the client, no matter the market conditions.