2018: Is GFC2 really coming?
By Bruce McLachlan, Chief Executive
12 February, 2018
Davos is a ski resort in Switzerland where the worlds business and political elite gather each January to discuss world economic affairs. Me, I would rather be on a New Zealand beach at that time or watching the tennis, however for many, Davos is the centre of world attention at that time rather than the other Swiss newsmaker Roger Federer.
This year though there were a number of high profile presentations and interviews that grabbed the world's attention. From early feedback from Fisher Funds clients my guess is they have captured your attention as well. In particular, the claim that "All the market indicators right now look very similar to what we saw before the Lehman and GFC crisis, but the lesson has somehow been forgotten" from Swiss-based head of the OECD's review board and ex-chief economist for the Bank for International Settlements William Whites. This comment caused some alarm and consternation with some New Zealand investors. At Fisher Funds, we witnessed the odd instance of bizarre and irrational investor behaviour to this early New Year coverage; namely poor investment decisions being based on very little rational thought and almost panicky in its nature.
For many years now and long preceding my time here at Fisher Funds, great effort has gone into making investment understandable, enjoyable and profitable for Fisher Funds clients. Much of that communication has emphasised the differences between investment and speculation, the value of risk management and long term thinking, and the notion of not trying to predict the future, but preparing for it. There is no need for irrational and panicky behaviour if investors have followed the basics.
Even though not any of us can predict the future with any degree of certainty, our very own Chief Investment Officer Frank Jasper addressed this very topic at the end of 2017. In it, Frank spoke to the fact it is widely known that many market valuations are stretched, however Frank also noted that the lead indicators that highlight the prospects for international company earnings were mainly positive. This led Frank to conclude there was unlikely to be any major market correction in the immediate future, however fund managers like ourselves would have their work cut out to find pockets of value and opportunity in this environment.
More recently, we have seen sharp sell offs in global markets triggered by risks of higher inflation and rising interest rates. Volatility is very much on the rise. These corrections have been healthy for markets that have been very overvalued, and proves once again markets are never a one-way bet.
This is where active management of your investments is important. Low fee passive funds are getting some coverage right now given they have ridden the positive investment environment over the last few years. For many New Zealanders these passive investments do not offer support and peace of mind which increases the risk of irrational investor behaviour in dark times. The real benefit of being with a reputable active manager like Fisher Funds is in the more complex and difficult investment environments like that we have ahead of us. There is no need to act irrationally or panic if you have selected your investments carefully, and your investment manager even more carefully. William White may not be wrong and GFC2 is around the corner, however you can rest easy at the beach or at the tennis. Let Frank and his team do the worrying for you.