Is caution being thrown to the wind?
The financial markets seem to have a lot of moving parts at the moment. Relatively swift changes to exchange rates, commodity prices, interest rates, GDP outlooks and share prices have made it increasingly challenging for a value investor to arrive at a clear view on how best to allocate investment funds.
Included in the worrying recent signs are reports that suggest amnesia is returning to certain credit markets – in other words, the chase for yield may be causing investors to focus on return, while forgetting to take account of risk.
Most recently, Deutsche Bank and Nomura have drawn attention to a 25% surge in the price of junk-rated commercial mortgage bonds since December, and Bloomberg has reported that the issue of dollar-denominated bonds by Asian Corporates is growing at 10 times the rate of global corporate debt markets, as investors chase the relatively higher yields on offer in the region.
For our part, we will continue to be focused on the long game, and where we feel that the markets are not adequately rewarding investors for the risk they are taking, we will choose not to take it. This may mean holding material cash balances in our funds until the balance of risk and return is more favourable.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
