The search for yield is becoming an ever tougher quest for investors, especially the more cautious amongst us. Arguably, the easy money has already been made within the fixed income space; cash offers little as an investment vehicle and many question what the growth drivers will be behind many developed market economies and stock markets. Thus we are left asking, where should one invest?
We also need to question the type of environment we are investing in. Government action will be highly influential as it exits from its policy of Monetary Easing. Timing will be crucial but almost impossible to get right. Too early and we risk dipping back into recession and experiencing the destructive forces of deflation; too late and the threat of rampant inflation rears its head. The consensus is that the government will favour the latter option as the lesser of two evils. Either way, any recovery the world sees may be a volatile one and clarity may remain elusive. Concerns over debt are still acute and here in the UK the Government predicts expenditure, revenues and debt are to get worse before getting better.
Thus I highlight the importance of an active management approach to investing, where the manager has the ability to react quickly to the changing environment and provide protection on the downside. Focus is also on being selective within each asset class. Although no longer a broad-based trade, opportunities remain within fixed income, with quality paramount and the focus on being name specific. Equities are looking more interesting. Nevertheless, with the potential for corrections in the markets in the near-term, investing with long / short managers, who have a proven track record of navigating the choppy markets of the last few years successfully and who are well-positioned to exploit opportunities both on the upside and downside, is attractive.
Emphasis is on being pro-active rather than reactive and continuing to monitor the changing economic and market environments closely.
ALLOCATE TO EQUITIES
ANTICIPATE A MARKET PULLBACK (i.e. invest via long/short managers able to protect on the downside)