Eight years after the collapse of Lehman Brothers' triggered the global financial collapse, fund managers reveal the biggest lessons learned and those which remain on the horizon and are continuing to threaten the asset management industry.
Nick Davis, manager, European Income fund, Polar Capital
Embracing uncertainty
Like previous financial crises, the global financial crisis has seen a very weak and drawn out recovery. A lot has been learnt in the course of fighting the crisis, although we are still searching for plenty of answers.
The ongoing policy response remains a work in progress with many questioning whether monetary policy is reaching its limits. Expectations for fiscal easing are growing as populism gains ground. The potential growth rates of our economies and therefore trend earnings growth are key unknowns.
The current 'lower rates forever' consensus view may end up looking as foolish as claims to have 'ended boom and bust'. A recovery to pre-crisis earnings trend growth would imply a big recovery for Europe.
On the other hand, a new normal of very low growth would justify a further re-rating of scarce growth to ever higher Nifty Fifty valuation multiples. Historic valuations as a reference point would have been pretty unhelpful over the last few years as plenty of these stocks just became ever more expensive.
Ultimately, investors have had to learn to embrace uncertainty. At a micro level, this means regulation, technological disruption, volatility in input costs, changing customer needs, growing digital opportunities and challenges.
Very cheap capital and technology are lowering the advantages that scale once commanded. At a macro level, most key variables have proven difficult to predict such as commodity prices (for instance, oil price volatility), long-term bond yields (eg, huge amounts of negative yielding debt), foreign exchange (for example, Swiss franc peg change) and geopolitical (for instance, Brexit).
We strongly believe a disciplined bottom up investment process is critical to delivering consistent performance when macro trading calls have become more difficult.
