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Alex Orus CIO, Blue Diamond Asset Management

Comment: Not all ‘safe assets’ are low-risk

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Alex Orus (pictured), CIO, Blue Diamond Asset Management, on the current ‘flight to safety’ prompted by the recent political and market turmoil…

The political and market turmoil has caused many investors to aggressively reduce or exit equity markets in favour of what the global media and investors call “safe assets” – for example, US treasuries, Swiss and German government bonds.

It is understandable that investors want to de-risk their portfolios as long as political leaders, in particular in Europe, are struggling to take any decisions that would make sense in the long-run. However, we believe that a “de-risking” of a portfolio does not always mean less equity and more bonds.

The current yield curves in the US, Switzerland, and Germany indicates extremely low or even negative real yields (that is nominal yield – inflation) across all maturities. A negative real yield for any investors means a certain loss. Is a certain loss a low risk alternative?

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