Market risks splitting opinion among experts

Bill Gross thinks market risks are at their highest levels since before the financial crisis, but it’s not an opinion shared by all

Market risks splitting opinion among experts

Bill Gross didn’t hold back when giving his view on the markets earlier this week. According to the legendary investor, market risk levels are at their highest since before the 2008 financial crisis because investors are paying a high price for their investments.

“Instead of buying low and selling high, you’re buying high and crossing your fingers,” Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund, said at the Bloomberg Invest New York summit.

However, Gross’ pessimism isn’t shared by everyone. Robert P. Browne, chief investment officer for Northern Trust Asset Management, believes the current environment is in fact positive for risk assets. “Bill Gross is one of the great investors of all time but in terms in overall market call, especially as it relates to equities, he’s been episodically bearish through the years and just hasn’t been accurate,” Browne says. “It’s a good example of how a difference in opinion makes a horse race.”

Browne, who is also co-portfolio manager of the Northern Global Tactical Asset Allocation Fund, believes that current market risks are discounted and well-known. He doesn’t think the end of the economic cycle is near or that a recession is imminent, an environment that, Browne says, provides a “very open landscape”.

“We think this environment we’ve been in for several years will continue, supported by modest but sustained economic growth,” Browne says. “We assign a very low risk to a recession in the next few years and expect continued accommodative economic policy, especially from the Bank of Japan, the ECB and even the U.S where, by historical standards, rates remain relatively low. In terms of our market view, we are overweight global equities, underweight U.S. bonds, and overweight high yields.”

Other than a recession, which he thinks is not on the horizon, Browne describes most other market risks to be “very manageable”. In terms of the most significant risks right now, Browne points to political dysfunction in the White House and the potential inability of the government to initiate any type of tax reform or infrastructure spend in order to improve productivity and boost the 2% growth environment.

“Although there were high expectations for that at the end of last year, and that was the catalyst for the market rally, the market has significantly downgraded their expectations for policy changes beneficial to the economy,” Browne says. “Since then the ball has been handed to synchronized growth. So, to some degree, the Trump administration caught a huge break. Even if you initially bought risk assets expecting it to be a policy driven rally, it’s now a synchronized growth driven rally and we think that is justified.”

“If the Trump administration actually stabilizes and works with Congress to get some things done, I think that will be the icing on the cake over the next 12 months, but it’s no longer our base case for investors.”

Related stories:
Is the Canadian hedge fund market ready to take off?
Why Canada could be headed for an advisor shortage