What is scaring managers most this Halloween?, October 2021

March 2020 was a scary time for many – we faced a global pandemic, lockdowns, and an uncertain future. Roll on more than 18 months and there are still many uncertainties in the world. But what is scaring fund managers most when it comes to our investments?

Here, six managers share their investment fears with us.

Rosemary Banyard, manager of VT Downing Unique Opportunities

“The stock market can generally handle one area of concern but struggles with multiple or simultaneous worries. Thus, it has coped well for many months with the debate about whether inflation will be short-lived or become embedded. Now we have tax and interest rate increases, energy and chip shortages, and a Chinese property crisis, and share prices have understandably retreated.

“What scares me most is the risk that China may decide to take control of Taiwan by force. The recent Aukus nuclear submarine deal with Australia, the removal of Chinese technology from telecoms and nuclear infrastructure, and the $52bn of funding to boost US silicon chip production all confirm a new Cold War. A bit of cash and some investments in the shrinking listed UK defence sector may not offer much of a buffer to this black swan.”

William Lam, manager of Invesco Asian 

“The trend for making investment and capital allocation decisions based on environmental, social and corporate governance (ESG) considerations alone gives me nightmares. It seems obvious that this trend - more of a stampede really – could lead to unintended consequences.

“We are seeing such consequences already in the form of extremely high coal and gas prices. I am sure there is more to come, making the world a more uncertain place. While we all desire to make the world a better place, whenever there is clear herd behaviour among companies and investors it tends to make me wary. This time is no different.”

Jim Leaviss, manager of M&G Global Macro Bond

“Energy prices worry me. Inflation will persist for the remainder of this year – transitory doesn’t mean one or two months, it means a lot longer and could become more permanent. And the impact this could have on growth worries me even more.

“The year after an oil price spike is usually one when the global economy doesn’t do well, so 2022 may be hard. If you’re worried you can own linkers (inflation-linked government bonds) – they are expensive, but will give peace of mind.”

Maneesh Bajaj, manager of Brown Advisory US Flexible Equity

“One of our biggest worries is that investors over commit to the markets when they have been strong and then panic when they inevitably turn soft, thus bailing out of a solid long-term plan at the worst possible moment.

“The approach we take in managing the Brown Advisory US Flexible Equity fund works best for investors who appreciate the good times and take the challenging ones in their stride. The ups and occasional downs are part of the landscape good investors incorporate into their expectations. Long-term successful investors know there is never a bad time to make sensible investments.”

Deirdre Cooper, co-manager of Ninety One Global Environment

“What keeps me awake at night is the enormity of the challenge of reaching net zero in a fair and inclusive manner and emerging markets (EMs) floundering in the wake of their richer counterparts. Without critical intervention from developed market policy makers ensuring EMs receive time and financial support to transition, this is a very real possibility.

“The onus is also on asset allocators who must avoid divesting from the worst offenders when they need finance to transition, especially if it’s just to optically ‘clean’ their portfolios without considering the real-world impact. Rather, they should actively engage with high emitters ensuring they are on a realistic pathway to decarbonisation.  Net zero for only part of the world means no net zero at all.”

Matthew Brett, manager of Baillie Gifford Japanese

“The only thing we have to fear is...fear itself” - Roosevelt’s seminal speech is as relevant today is it was in 1933. Investors often fear short-term setbacks, yet these are as inherent as they are inescapable. By focusing on the short-term scares many miss out on the high return potential of owning growth businesses over the long-term. 

“So rather than getting ourselves scared, we would prefer to snuggle down at Halloween with a good book and wait till morning when, inevitably, the sun will rise again.”