THROUGH THE LOOKING GLASS: NAVIGATING AN UNPREDICTABLE WORLD
Much has been written about the challenge of generating returns when yields and risk premia are relatively low. It is, however, just as important for investors to recognize the many sources of economic and political fragility in an environment in which we may be reaching the limits of monetary policy effectiveness. Investors are therefore compelled to consider a wide range of possible futures and to build portfolios that are likely to be resilient to a range of scenarios.
In response to this challenging set of circumstances, investors need to look both inward and outward. Looking inward, investors should seek to identify any characteristics of their approach, objectives or circumstances that might provide a competitive edge or raise the importance of certain categories of risk. Looking outward, investors can then seek to build a portfolio of assets and strategies that maximizes their specific advantages and improves the likelihood of meeting their long-term objectives while managing the risk of capital impairment.