Volatility is likely to be the new normal
- To understand how the world has become more volatile
- To gain insight into how volatility has affected various asset classes
- To understand how to manage portfolios more effectively
Volatility is likely to be the new normal
- To understand how the world has become more volatile
- To gain insight into how volatility has affected various asset classes
- To understand how to manage portfolios more effectively
Introduction
By Melanie Tringham
The past year has been noted on the political scene for its upsets and consequent volatility.
Markets were taken by surprise by Brexit. Similarly, earlier this month, Donald Trump surprised the pollsters yet again by winning the US election, even though, the pollsters may argue, he did not get the popular vote.
Over the past 11 months, investors began to realise that volatility is becoming all too real and normal as a prospect – sterling crashed through floor shortly after the EU Referendum, and gilt yields plunged as more investors looked for safe havens.
With the unexpected becoming the new normal, some investors are in a state of panic. What will happen next year in the French elections? Marine Le Pen is hoping her chances have strengthened on the back of the wave of resurgent populism.
The problem is that as the politics became more unpredictable, investors worry that this makes economies, and future prosperity, unpredictable. But this equation is by no means certain.
As experts point out, if you had invested a small amount of money throughout the past 50 years, you would still be sitting on a sizeable investment, despite several stock market crashes, recessions and sovereign debt defaults.
The usual rules of investing for the long term and building a balanced portfolio have come into play. It is during times of uncertainty that it pays to have an investment manager or financial adviser with a few grey hairs who has seen uncertain times at least once before.
There are also opportunities; some are even saying that we will see a revival in the American economy on the back of the Mr Trump’s economic policies of tax cuts and infrastructure investment. Whether this is sustainable over the long term is open to question.
But now might be the time to consider other options, such as infrastructure as a form of investment, which has struggled to gain mainstream acceptance, or other alternatives, such as private equity.
It may make for politically interesting times, but for investment professionals, the political changes are a time for holding one’s nerve and waiting for new opportunities to emerge.
Melanie Tringham is features editor of Financial Adviser
