
Outlook 2020: are we in a late cycle environment?
5 December 2019We asked a number of our fund managers whether they believe we are now in a late cycle environment and what the implications are for their respective asset class.
The team believes that fixed income and currency markets are ultimately driven by economic fundamentals. However, prolonged periods of mispricing occur when other drivers, such as market sentiment, dominate. Therefore, managers who can identify the real market drivers and capture their shifts can successfully add alpha.
The team’s top-down, thematic process has risk management embedded throughout. Having identified the market backdrop, the team uses original economic research – focused mainly on developed and liquid emerging markets – to identify strong ‘economic stories’. They seek to capture these opportunities by determining market valuations and building metrics for currency and rates ideas. The outcome is a set of fair valuations and stop loss limits for each market or currency. Trades are based on conviction, while technical analysis is used to size and time trades. Typically, the team’s 8-12 themes account for 60-80% of the portfolio’s risk capital. The remaining 20-40% is allocated to short-term, tactical trades. Risk is managed through monitoring correlation, diversification and liquidity, while hard stop loss limits are set for each trade at inception.
We asked a number of our fund managers whether they believe we are now in a late cycle environment and what the implications are for their respective asset class.
We asked a group of our portfolio managers a series of questions about their respective asset classes. This third video, in a series of three, looks at the themes the managers are currently exploring.
We asked a group of our portfolio managers a series of questions about their respective asset classes. This second video, in a series of three, looks at the overall market environment.
The Global Rates team is led by Adrian Owens, Investment Director, who has been involved in discretionary macro investing since 2004. Adrian’s 30-plus years as an economist and investment manager are at the heart of his ability to understand how macro factors drive market behaviour and are central to his aim to generate attractive, risk-adjusted returns across all market conditions.
Adrian is supported by Rahul Mathur, who provides investment management and analysis with a particular focus on selective emerging markets, and Alistair Wallace, who provides investment management and analysis. Scott Watson is the dedicated dealer for the strategy and provides support and execution for bonds and currencies.
The team operates independently and has autonomy over their investment process, while being supported by GAM Investments’ risk team, which provides independent risk oversight, as well as investment administration and operations teams.
Our eclectic approach to investment, though driven by economic fundamentals, does at times place more weight on an array of other factors. We believe successful evaluation of the importance of such factors comes only from experienceAdrian Owens, Investment Director.
If a counterparty to a financial derivative contract were to default, the value of the contract, the cost to replace it and any cash or securities held by the counterparty to facilitate it, may be lost.
Derivatives may multiply the exposure to underlying assets and expose the Fund to the risk of substantial losses.
A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.
The value of investments in assets that are denominated in currencies other than the base currency will be affected by changes in the relevant exchange rates which may cause a decline.
Emerging markets will generally be subject to greater political, market, counterparty and operational risks.
All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.