Lehman Brothers collapse – what lessons have we learnt?

Advertorial

10 September 2018 | Ekonomie
Looking back over the last decade, three aspects stand out to me: Firstly, we have seen a tremendous rise in passive investing. It is estimated that around US$8 trillion of assets are passive, accounting for about a fifth of global assets under management. Today there are more indices than there are individual stocks, which says something about how people are investing. There seems to be more importance placed on a top-down view than bottom-up fundamental stock analysis, which we believe could be a potential pitfall as we move into the next crisis.

Secondly, we saw that investors would accept negative yields, with around 20% of the developed market government bond index offering such returns. While the situation has rebalanced somewhat, across many parts of Europe and in Japan you are still guaranteed – if you hold it to maturity – a negative return on your investment in government bonds.

Finally, and related perhaps to the previous two points raised above, is that Central Banks could create money through their Quantitative Easing programmes. The US Federal Reserve's balance sheet alone, for example, grew from around US$1 trillion to US$4.5 trillion at its peak, and they did this without stoking significant economic inflation.

'Herding'

We worry that all of these conflate to represent the potential downfalls of a lesson which remains to be learnt – that investors still have a tendency to “herd” into popular trades.

At the beginning of 2008 financial companies represented the largest exposure in the S&P500 index (nearly 20%). Today, financial stocks represent a smaller weight than healthcare companies, with technology firms taking the lion's share. Investors have a habit of moving swiftly and en masse into trades.

As the tidal wave of money created by Quantitative Easing begins to turn this year, we worry that sharp moves in bonds and equities could become more commonplace.

We currently judge the chance of recession over the next year to be relatively low, likely around 10%. Over the next two years, however, this rises sharply to around 50% based on the yield curve and output gap.

So, in addition to the economic cycle starting to look a little bit frayed, we are also sitting at record highs for the S&P 500, valuations are looking less than appealing, quantitative easing is starting to go into reverse and liquidity is less readily available because central banks are still in a tightening cycle. Taking all of this into account, we believe investors should start giving serious consideration to how they will insulate their portfolios from potential falls and lock in some of the gains from the past decade.

We therefore hold our lowest allocation to “growth” assets, i.e. those which benefit from a positive economic environment, for the last 5 years. This has meant selling equity and corporate bond exposure, whilst maintaining some upside via call options. We are also running a relatively low duration as we believe government bonds may not provide such a reliable offset to equity losses as they once did.

Soortgelyk

 

Kommissie vir grondeise aangestel

1 dag gelede | Regering

Ronelle Rademeyer - Pres. Hage Geingob het gister ‘n presidensiële kommissie van ondersoek na voorvaderlike grondregte en hoe daarvoor vergoed moet word, aangestel.Dié kommissie onder...

Vrou wat kraam se pelvis breek glo in staatshospitaal

1 dag gelede | Gesondheid

font face="Verdana" >Henriette Lamprecht – Wat ’n normale bevalling moes wees, het na bewering vir ’n jong ma ’n gebreekte pelvis, gebreekte heup en reusebloedverlies...

Kalender 22 Februarie

1 dag gelede | Kuns en vermaak

Nou aan die gang» Vir slegs twee aande sluit die sanger Slickartie by die alombekende Mashura-band aan. Dié nuwe groep gee jou goeie rede om...

Weer vir 22 Februarie

1 dag gelede | Weer

BINNELAND: Gedeeltelik bewolk en baie tot bloedig warm met 'n paar buie in die Weste.KUS: Gedeeltelik bewolk en koel tot warm met miskolle op plekke...

Waardasierol is nietig

1 dag gelede | Howe

Elvira Hattingh - Weke nadat plaaseienaars hul saak oor die staat se jongste waardasierol in die hoërhof gewen het, is die Namibië Landbou-unie (NLU) reeds besig om...

'Ek was 'n Judas wat vir mense gelieg het'

1 dag gelede | Howe

Ronelle Rademeyer'n Senior admini­stratiewe beampte het gister in die hoërhof in Windhoek getuig sy was met haar rug teen die muur oor skuld en het...

Tyd vir skoffel in die Ooste

1 dag gelede | Kuns en vermaak

Yolanda Nel – Dit is om die draai en beslis nie iets wat jy wil misloop nie, so omkring sommer nou reeds 21 Maart op...

Skaam en wild

1 dag gelede | Kuns en vermaak

The Poject Room bied eersdaags Anne Lacheiner-Kuhn se Shy Wild-uitstalling aan. DIE KUNSTENAARAnne Lacheiner-Kuhn, die Namibies gebore kunstenaar, wat tans in Londen woon, maak van...

ACC: Jaar van aanspreeklikheid lê voor

1 dag gelede | Misdaad

Elvira Hattingh - Die Teenkorrupsiekommissie (ACC) ondersoek tans 455 sake, terwyl 32 reeds by die prokureur-generaal ingedien is om te besluit of vervolging moet plaasvind.Mnr....