Past Programs

What if’s … In recent times, there is no shortage of major events impacting global markets in unexpected ways. Geopolitical specialist Alan Dupont takes Nassim Taleb’s theory further, arguing that we are going to see flocks of black swans rather than individual black swans. In the context of investor’s portfolios, how can scenario analysis enhance diversification strategies?

With bond yields rising and the promise by the US Federal Reserve of a more aggressive stance towards the longer-term outlook for rates, we are arguably at an inflection point. These moments in time are often chaotic and correlations could become more irregular, and at times break down. How do we position an equity portfolio that is robust enough to withstand such a climate?

Following the successful program in the last two years, the Investment Innovation Institute [i3] is once again pleased to convene the 3rd annual masterclass in 2017, in partnership with the Pacific Provident Fund and Social Security Forum (PPFSSF).

In a world where negative interest rates are becoming increasingly common place, we are forced to evaluated the role of bonds. For many institutional investors, the reason to invest in them is diversification, after all bonds are usually negatively correlated to equities. But with yields hovering around zero, there is little solace in bond returns during risk off periods.

In asset management, investors are faced with many choices: Do they go active or passive? Do they pick stocks through fundamental analysis or quantitative strategies? Do they manage assets in-house or do they appoint external managers? But often these binary choices are too simplistic and ignore the vast complexity of real life situations.

The basic asset allocation tenet of bonds vs equities vs cash is seen as somewhat naïve and outdated. With divergence of markets and investment regimes caused by excessive government interference, investors can no longer rely on traditional valuation metrics and expected behaviour of assets.

The perfect storm of exceptionally low returns, increased risk levels and diminished diversification opportunities await all investors. The uncertainty is further exacerbated by the divergence of global monetary policies and investment regimes of US, European Union and Japan.

Insurers have traditionally allocated capital based on a liability-driven framework. In this new era of continued uncertainty in markets and economies, significant headwinds await.

The divergence of investment regimes, monetary policies and markets will have profound impact on the drivers of portfolio construction. As the printing press at the US Federal Reserve decelerates, central banks in Europe and Japan continue to up the ante on monetary stimulus. Consequently, elevated asset valuations may indicate that we are borrowing investment returns from the future. Where will growth come from next?

The issues that equity investors face today are of a more granular nature than, for example, your traditional active versus passive debate. The rise of smart beta and factor-based strategies, the search for yield and the continuing divergence of economies all present opportunities and challenges.