A rough sea for investors

FOR much of the past three or four decades, making decent returns from a balanced portfolio only required a single decision, and that was to be invested.

Yes, there were a few blips on the way, but ever since the crash of ’87 central banks have effectively underwritten portfolios, leading us to the current point where low risk assets offer near zero potential for returns, high quality risk assets are as expensive as they have been in a generation, and the cheap-looking stuff is cheap for a reason and requires a combination of skill, faith and nerves of steel.

It’s probable that many investors, both amateur and professional, mistook a very strong secular return environment for their own genius. Life is harder now. Not only are the economic and monetary tailwinds likely to be less strong henceforth, but the political situation is also becoming less helpful. A broad centrist consensus in favour of liberalisation and deregulation is in danger of giving way to more extreme views to the right and left, and we have already seen moderate governments being forced to adapt to this environment by modifying their policies.

One could say the events leading to the UK’s decision to leave Europe were the result of such a development.

We are currently seeing democracy in action in its most literal form. The word is derived from the Greek words demos, meaning people, and kratos, meaning power – or “Power to the People” as Citizen Wolfie Smith used to shout outside Tooting Broadway station!

Whether that power is judged to be used correctly often depends on which side of the debate you are on, but one can contend that many voters use referendums or elections not to vote for the issue in question but as a vehicle to express dissatisfaction with the government or the establishment or some other facet of life with which they are unhappy. This can lead to unintended consequences.

John Wyn-Evans is head of investment strategy at Investec

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