The Trump administration in the US is embarking on what The Economist describes as ‘an extraordinary economic gamble’. Like any gamble, the Trump agenda has a range of potential economic outcomes both positive and negative. The impact on the US stock market could be severe and the risk/return trade-off is highly unfavourable for broad based US equity exposure.

As equity markets around the world continue to rise, it is timely to remind ourselves of one of Warren Buffet’s most famous quotes – “Be be fearful when others are greedy and greedy only when others are fearful”. Equity markets have always gone through boom and bust cycles, driven primarily by investor emotions. The key to successful investing is to not allow our emotions to influence our investment decision making, although this is easier said than done.

Much has been made of the ASX 200 index recently breaking through the 6,000 mark for the first time since the GFC.  For many investors this milestone represents an important psychological threshold and some are becoming increasingly concerned about the prospects for a market correction.  But what, if anything, do current market levels tell us about the risks for investors?

Market commentators often claim that higher interest rates will lead to lower equity prices. In our view, many of these claims are overly simplistic and inconsistent with both empirical evidence and the fundamental drivers of equity valuations. While certain segments of the market are sensitive to higher interest rates, it is entirely plausible that interest rates and equity markets can rise in tandem as monetary policy settings return to neutral levels.

Volatility is an essential characteristic of equity markets but one which is difficult if not impossible to predict. While some investors choose to reduce portfolio volatility by investing in more defensive asset classes such as bonds and cash, others embrace volatility as an opportunity to enhance long-term portfolio returns. While we do not believe that investors can consistently time the market, there are a range of strategies that investors can adopt to protect against permanent loss of capital and potentially profit from market corrections.

Debate has been heating up over recent weeks regarding the valuations of the leading global technology stocks and the risks they pose to market and portfolio returns.  Views vary widely as to whether these stocks are overvalued but it is safe to say that as values continue to rise so too does the risk of a major price correction.  Our approach to managing this risk exposure is to hold a portfolio of fund managers with differing strategies for investing in the technology sector.

In the ongoing debate between active and passive management, many still believe that there is greater opportunity for fund managers to add value when investing in companies with smaller market capitalisations. While the evidence indicates that, as a group, active managers in the small cap category have been able to outperform the index, individual managers have failed to maintain their level of outperformance over time. In this article we examine the performance of ten of the most highly rated small cap fund managers in Australia to determine the lessons for fund selection.

S&P Dow Jones Indices recently released its review of active fund manager performance for the period ending December 2016. The media was quick to jump on the results and the apparent superiority of passive index tracking funds as an alternative to active fund managers.  A closer examination of the data, however, indicates that investors would be wise not to jump to such simplistic conclusions.