One thing Brexit has done is remind us about the inherent vulnerability of financial markets to these sorts of shocks. Our approach is anchored to the idea that the ability of markets to withstand these shocks is a function of valuations (cheap assets are in a much better position than expensive assets) and in the ability of policy makers to provide support. The caution we describe above reflects both these ideas. Cheap assets are non-existent (and some much more vulnerable than others) and the ability of policy makers to deal with a crisis is arguably reaching a limit (debt levels are tapping out and interest rates are already very low / negative). This makes markets vulnerable. It also means that what we’ve seen recently in terms of heightened volatility and strengthening headwinds will become more evident going forward. Steering a steady course through this, and taking advantage of these episodic dislocations will be important as we balance our return objectives against our risk objectives – particularly the avoidance of significant downside risk. (VIEW LINK)


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