The global economy has moved from its ‘Goldilocks’ era into a nonsensical stage where investors put money into assets which almost guarantee a loss, Miton Capital’s head of multi-asset has said.
Speaking to Financial Adviser, David Jane, who runs Miton’s multi-asset fund range, said we have entered financial territory that does not make sense, describing the current climate as an “Alice in Wonderland economy”.
Mr Jane said there was a continuing trend where investors were “pushing further out on the risk curve” to try to earn decent returns.
He added: “At the moment, if you are a European fixed income investor, you are forced to take the certainty of losses over the risk of losses. Normal people would never invest money for a guaranteed negative return.”
Mr Jane said people used to refer to the Goldilocks economy, a climate characterised by increasing asset prices, low interest rates, and a steady growth in gross domestic product, meaning it is not too cold to cause a recession and not too hot to cause inflation.
Now, he said, we’ve moved into an era where people will buy a bond and hope to get 95 per cent of their cash back.
Anthony Rayner, who co-manages the multi-asset range and previously worked with Mr Jane at Darwin Capital, said efforts to improve markets through existing monetary policy now look “tired”.
He added: “There is a massive deficit of infrastructure in the UK, the US and Germany,” and said the governments should instead invest in infrastructure to ensure money gets into the hands of the people who will spend it; that is, the less wealthy demographic.
“That is a productive way of advancing the real economy, rather than QE,” he said.
“It’s a vain hope central banks can somehow create miracles out of a tool that is very limited.” David JaneMr Jane pointed out that central banks have no control over the “real economy”, such as productivity, technology and natural resource.
He said:“Money is actually just a measurement tool, and the central banks only have real influence over that, so it’s a slightly vain hope they can somehow create miracles out of a tool that is very limited.”
The multi-asset manager said policymakers were heavily focused on stability and increasing the price of financial assets, which he claimed was creating the makings of the next problem.
He said: “It’s all a consequence of the financial crisis being so scary for so many people that the central banks felt they had to invent ever more policies to prevent that from happening again, but of course, the unintended consequences of current policy aren’t really known yet.”
The pair manage the £319m Cautious Multi Asset fund, the £85.5m Miton Defensive Multi Asset fund, and the £57.1m Cautious Monthly Income fund.
Mr Jane founded investment boutique Darwin, which was bought by Miton in June 2014.
Colin Low, chartered financial planner and managing director of Suffolk-based Kingsfleet Wealth, said: “I would agree that we have moved into a nonsensical economy, but it has been true for the past six years.
“Investors are being tempted into taking more risk than they can sometimes afford.”
katherine.denham@ft.com
