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.
James Inglis-Jones, co-manager, Liontrust European Growth fund
A rewarding decade?
The biggest change we have perceived is the dramatically higher profile of central bankers. Following the collapse of Lehman Brothers and the global financial crisis which ensued, it became incumbent upon these purveyors of monetary policy to chart an economic path of recovery in the absence of much scope for fiscal stimulus under conditions of austerity.
We would not want to speculate on how appropriate the global policy response was, but we are happy to critique the inadvertent investor behaviours that such an environment has fostered.
Lehman's collapse effectively ushered in an era of investor dependency on central banks to drive risk appetite. Markets became accustomed to easy money and hugely accommodative policymakers, who were happy to provide fresh stimulus at the first sign of a weakening of investors' 'animal spirits'.
This created a perverse investment environment. Near-zero interest rates and massive money printing programmes effectively bailed out the most troubled companies in the wake of the global financial crisis. Investors responded by seeking risk, bidding up the prices of cheap assets with 'contrarian value' appeal. Some labelled this process as a 'dash for trash'.
Sentiment levels
This environment represented a huge challenge for fund managers who have built their investment processes around analysis of company fundamentals rather than the prediction of aggregate investor sentiment levels.
The most rewarding investment strategy during the many bouts of risk appetite was to focus on low-quality stocks on depressed valuation metrics as they performed well in an environment of rising optimism and enthusiasm for risky assets.
Despite these significant bouts of sharp value-driven market gains, the last ten years as a whole have been rewarding for those who were willing to stick to their guns and continue to invest in high-quality companies with strong fundamentals.
Our concern is that occasionally this longer-term story has been overlooked in favour of an often counter-productive pursuit of short-term returns.
We still find ourselves in an environment where every central banker utterance, let alone policy change, is analysed for the potential stockmarket implications.
However, developed market central bankers have exhausted most of their policy arsenal which appears to have become increasingly ineffective.
While there is increasing pressure on governments to embrace fiscal policy the current environment should be more rewarding for investment processes that focus on company fundamentals.
