Some Urgency to Return—Again—to First Principles

Trustees and investment committees will be reviewing the performance and risk results of portfolios as they pass the half-way point of 2020.

Franklin Templeton Multi-Asset Solutions

Preview

As we pass the half-way point of an extraordinary 2020, we expect trustees and investment committees will be scheduling meetings to review the performance and risk results of their portfolios. The investment environment has been extraordinary, and has virtually all investment committees facing a new reality:

  • Equity markets (as of mid-August) near or just below all-time highs, with underlying valuations also near close to peak levels.
  • Developed Market Sovereign bond rates across the curve near all-time lows.
  • Huge “dry powder” available in the form of committed but undrawn capital in private markets, including private real estate and private equity (in particular).
  • Significant dispersion in forward-looking economic forecasts.



WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline.