Many readers will be familiar with the different types of risk that one needs to allow for when constructing a portfolio be it liquidity risk, currency risk, value at risk (VaR), etc. Now however there is a new type of risk – ‘Headline Risk’. We define headline risk as the short term damage (often quite significant) imposed on a portfolio by a few loose comments (by politicians or central bankers for example) and/or the latest data point (upon which the market has become fixated).
Being aware of the actions and views of others is nothing new to investment management - after all one can be right for a long time and lose a great deal of money in the process long before everyone else might share ones view. However, having to prejudge the latest comments by those who influence the markets most has never been so important. Towards the end of February we had to contend with the suggestion by the Governor of the Bank of England that further quantitative easing could not be ruled out and the opinion poll for the UK’s 2010 general election indicating that the likelihood of a hung Parliament had increased significantly. Indeed both of these events led to a rapid decline of Sterling in the last few days of February and the first few days of March.
The impact of this was particularly acute for us given that we had hedged out our Yen exposure and part of our Euro exposure.
Fortunately one of the benefits of the multi-manager approach is being able to react quickly to changing circumstances. At the time of writing it is far too early to decide what the prognosis for Sterling will be between now and the middle of 2010, a period in which a general election will have been won and lost. What one can be more confident of however is that the volatility of Sterling’s strength is likely to increase. Fund of funds remain well placed to add long-term value though, and T. Bailey have a strong long-term record of adding value from geographical asset allocation.
Submitted by: Jason Britton
Websites are all very well, but sometimes only a very knowledgeable human will do. Please leave your details, and we’ll call you back.
Request call backThe value of your investment and the income derived from it can go down as well as up, and you may not get back the money you invested. When investing in retail unit classes, capital appreciation will be affected by the impact of initial charges and you should therefore view your investment as a medium to long-term holding.