We certainly live in a complex and challenging investing world, especially 10 years on from the global financial crisis. We believe that given these challenges, particularly within fixed income, it is important to have a diversified approach that allows for opportunities to enhance risk-adjusted returns.
While certain financial markets have become dislocated, it’s a time to be prudent and concentrate on the best opportunities. In current markets, it is important to focus on risk as a key element in assessing market or security selection. This view has guided the choices of my six favourite articles from the Cuffelinks archives.
My career in investment management has been a continuous learning experience, but I’m sure that I could have benefited from some sage words before taking the plunge. That’s why I really enjoyed the article What two investing insights would you give your 20-year-old self? Such a diverse group of 37 industry experts providing a wide range of pertinent advice. I tell my four kids that my job is to make more money for the people who trust me to invest on their behalf, to ensure they keep that money and grow it.
I really appreciated a few articles that focused on investment patience, since we employ a long-term investment approach at MFS. All our teams focus on sustainability and not short-term advantages.
Wilbur Li’s view of the rewards inherent in a long-term investing approach was interesting, as well as a piece by Chris Cuffe called Just when my portfolio was set for the long term. It exhibits the balance between buy-and-hold investing and being responsive to short-term trends.
It’s important to have a global perspective and be mindful of your bond allocation in this world of increasing volatility and complexity. At this point in the cycle, the importance of a diverse asset allocation and owning assets that can provide some ballast to a portfolio in times of market stress is paramount. My next pick explains the Five ways Australian super is a global outlier. Graham Hand shows how the compulsory superannuation system has hooked the earnings and savings of millions of Australians into the stock market. He correctly asserts that investment markets follow a herd mentality and it’s preferable to have an independent investment philosophy and process.
One of the things that comes up often in our discussions with clients is this fear of duration. Rates are generally rising, but we think that this generic statement underestimates the underlying complexity and opportunities of a global fixed income universe and the ability to deliver alpha and returns even though some countries are raising rates. David Scobie’s article called Are you in fixed interest for the duration? gives an excellent account of duration and provides much-needed education on this often-misunderstood topic.
Finally, I refer you to an interview I did with Graham Hand on How to select assets in a world of choices. This takes a deeper dive into the role of active management and how to create a multi-asset portfolio, among other topics.
Pilar Gomez-Bravo, CFA, Guest Editor
Pilar Gomez-Bravo is Director of Fixed Income – Europe at MFS Investment Management.