Context and awareness key for investors
Taking a methodological approach to investing is more important than ever, a leading global investment strategist advised a local audience.
The rise of populism and income inequality have ramped up geopolitical tensions and social unrest globally, says Phillip Colmar, but investors must take the long-term view rather than reacting to the latest late-night tweet, or piece of political news.
“You can't get scared by it,” says Mr Colmar, partner, global strategy, at MRB Partners, a privately owned research firm with offices in New York, London, and Montreal. “You have to contextualise it, and decide upon your investment strategy off the back of it.”
Mr Colmar was speaking a day after an invitation-only presentation, “A Persistent Undercurrent of Political Instability”, for Clarien Investments Ltd clients at the Bermuda National Gallery. In demand worldwide, Mr Colmar has visited clients in Latin America, Europe, Asia, and South Africa in the last month alone. He has a BA in economics, a BBA (finance) from Bishop's University in Montreal, and a MSc (finance) from Queen's University in Ontario.
The New York-based strategist seeks to make sense of populist political movements worldwide, the unorthodox views held by supporters of those movements, the impact of income inequality, as well as a myriad of other factors including the Brexit vote, with a view to advising MRB's clients on their global, multi-asset, strategic investment portfolios over a six- to 12-month horizon.
“The news flow is so politically focused because politics today is so unorthodox, and that makes for better headlines than in the past,” Mr Colmar says. “I wake up, see the news that has been tweeted about, or commented on, and in the case of US-China trade wars, it is important to determine whether it's just noise or the start of an intense trade war. You've got to take each piece of data, each new policy revealed through tweets, and assess it, fit it in a framework, contextualise it, and decide if it affects the underlying trend of the market or is just short-term volatility.”
Mr Colmar says that disappointing economic growth, extreme income inequality and limited social mobility are a recipe for extreme political outcomes. Together, he says, those forces build public support for radical shifts in political leadership.
How governments calm social unrest, he says, is important. For investors, the best path is a gradual unwinding of the imbalances in society — for example, a redistribution of resources to support educational programmes for lower and middle-income families in order to enhance social and economic mobility via a move up the value chain out of lower-skilled jobs. “Most governments don't do that, though,” Mr Colmar says. “So a good chunk of people are not skilled enough to compete, and that is where resentment comes about.”
The major displacement factor today, he says, is technology. “Governments are fixated on isolationist policies, antitrade policies, but the biggest displacement is minimally to do with globalisation and more to do with technology.”
Robert Steinhoff, head of investment strategy at Clarien Investments, said the company has partnered with MRB since 2014.
He said: “Geopolitical risk is an area that comes up with our clients, and for us it's very important that our clients know the risks. You can't just read the news, or follow the tweets. Instead, you've got to do rigorous research and have a toolkit to digest the news. Making a kneejerk reaction in the short term to geopolitical news is not usually helpful to meeting long-term investment goals.
“Having a framework, having rigorous data, helps us to contextualise what we are seeing every day. We focus on the fundamentals that drive returns — corporate profits, earnings, interest rates — but there are risks out there that we must be aware of.”