That is where the real challenge lies. Since the financial crisis, the risk part of the risk/reward equation has all but been taken out of the market by excess liquidity which has created, in Tilney Bestinvest CIO, Gareth Lewis’s words, “an indiscriminate bull market in risk assets”.
And, that has pushed investors, often unwillingly into areas they wouldn’t historically have gone.
Wei Li, head of investment strategy EMEA, at iShares put it slightly differently. Explaining some of the fund flow trends seen recently by the group, she said part of the explanation for the continued investor inflows into areas like fixed income and the US as well as the recent pick up in inflows into emerging market equities is because investors are worried about missing any rally at the moment.
“With returns so low, investors feel they cannot afford to miss the rally, from a benchmark comparison point of view,” she said, “That is why we are seeing flows into areas where investors may not feel entirely comfortable.”
The problem is that such a scenario resembles little more than a house of cards made up of one least-worst choice on top of another rather than a proper understanding of the actual risks involved.
To date, the dividend payers in which equity income funds invest have by and large remained sound, albeit not always from the sectors usually associated with high dividends, but there needs to be an acknowledgement that if it is to continue in its current form, there is a strong chance that more risk will need to be involved.
