Cautious portfolios may actually be the riskiest ones on offer, the chief investment officer of Psigma Investment Management has warned.
In an eight-page white paper Tom Becket said the “illusion of endless calm” in the fixed-interest market was being shattered and most cautious assets are now prohibitively expensive.
He said: “The past few years have witnessed the undertaking of the greatest monetary experiment of all time by global central bankers, helping investors and hindering savers.
“The pain inflicted upon savers has had a hugely distorting effect upon all lower-risk, yielding assets, rendering them both higher-risk and lower-returning assets for the foreseeable future.
“The term ‘cautious’ is now basically prehistoric, as the ravaging and distorting effects of central bankers have eliminated the return potential of most traditionally cautious investment choices.”
Mr Becket went on to say that, if an investor considered losing money and not keeping up with inflation to be key risks, then cautious portfolios could now be considered extremely risky.
He said: “We believe that the only solution for cautious investors is a mixture of diversification and innovation.
“Diversification is not simply throwing together a range of different asset classes, rather correlations have to be broken down and all manner of investments searched through.”
Mr Becket said that this concern about diversification had led to the creation of the Psigma Managed Portfolio Service Cautious strategy, which is made up of more than 11 core asset classes, such as long-term equity, emerging market growth, inflation protection and defence, across five sectors.
Mel Kenny, an adviser with London-based Radcliffe & Newlands, said: “It is hard to find cautious asset classes because Quantative Easing (QE) has raised the prices of all assets, and when everything’s going in the same direction, it is very hard to achieve diversification.”