Nimble Strategies for Changing Times
(Second Quarter 2011)

As it happened in 2008, whenever a large shock moves through the market it has an immediate impact. Investments shrink and risk aversion rises. Afterwards, performance recovers and investors become comfortable with risk again. This time, however, the market did not revert to its pre-crisis mode after 2008. New environments got established and lessons from the crisis sank in. This was the case for institutional investors who reassessed their diversification and liquidity exposures. Asset managers also made changes and revised their portfolio strategies.

What were some of the lessons learned ? Judging from the number of books and papers written about the 2008 crisis, there was plenty to be learned. Investors were introduced to “black swans”, poor diversification, high correlations, low liquidity and company risk among many others. In our view, one of the most important lessons was working in a market where trends and opportunities come and go quicker than before. To succeed in this new environment, investors need nimble strategies for changing times. We take a look in this newsletter at stock returns, risk, and trading behaviour we see in the market in the aftermath of the credit crisis.

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