Why we must turn to value
What’s the biggest risk to investor returns just now? The average fund manager reckons it’s a sovereign default in Europe. In the latest Merrill Lynch Global Fund Manager Survey, 43% of respondents saw it as the largest single global threat.
However, Mizuho International’s Jonathan Allum notes that, if the financial crisis has proved anything, it is that collectively we “know a great deal less about the financial system than we thought we did”. So while the blood-curdling stuff in the papers about Greek default is very exciting, for “financial markets there is always a more banal risk: that things do not – for better or for worse – turn out the way you expected”. So with the vast majority of pundits utterly convinced that default is both imminent and inevitable, surely at this point “a failure to default would be a risk”.
Not getting a default would be nasty for anyone short Greek bonds, of course. But it wouldn’t be good for the average fund manager either. Why? Partly because they are spending lots of money buying “tail risk protection products” to insure against another bout of 2008-style illiquidity.
• Read the full editor’s letter here: Why we must turn to value