On many occasions we have commented on how markets look stretched, based on valuations, pointing to a low return outlook over the next three years. The other side of this coin is that markets are also more vulnerable to shocks — the more stretched valuations are, the greater the likely downside shift if markets are confronted with negative news. It is therefore prudent to scan the horizon for likely shocks that may destabilise markets. The most damaging of shocks would be a US recession. A typical shock will see greed turn to fear, and often leads to a 20%-plus fall in share markets, like the European shock in 2011.
Unsurprisingly we spend a great deal of time determining the risk of recession. Our modelling has found there are generally three phases leading into a recession. First, the economy begins to see signs of overheating — goods and labour markets are tight and inflation pressures start to build. This generally occurs one to two years before a recession. Then, the central bank responds by raising interest rates and draining liquidity out of the system. Policy becomes tight, and with a lag of six to 12 months, this leads to a recession. The last leg to fall is when we start to see it in activity, with investment and employment falling and consumers beginning to rein in on their spending.
Schroders believes in the potential to gain a competitive advantage from in-house global research; that rigorous research will translate into superior investment performance. We believe that internal analysis of investment securities and markets is paramount when identifying attractive investment opportunities. Proprietary research provides a key foundation of our investment process and our world-wide network of analysts is one of the most comprehensive research resources dedicated to funds management.
Areas of expertise:
• Australia equities
• Fixed income
• Global equities
With a global network of researchers, we focus on serving our clients and targeting one result - superior investment performance.
Inherent in our approach to investment management is:
• A structured, disciplined and repeatable investment process
• A clearly defined investment style
• A team approach to investment management
A global asset manager
• We have responsibility for A$803.1 billion of assets* on behalf of institutional and retail investors, from around the world. Their assets are invested across equities, fixed income and alternatives.
• We employ over 4700 people worldwide who operate from 41 offices in 30 different countries across Europe, the Americas, Asia and the Middle East.
• We are close to the markets in which we invest and our clients.
• Schroders has developed under stable ownership for over 200 years. Long-term thinking governs our approach to investing, building client relationships and growing our business.
*Source: All data as at 30 June 2018