“Because monetary policy is the only show in town it will go too far and it will cause distortions in asset markets, and will also strain people’s desire to spend and increase their savings for the same income stream and it can have a depressing effect on activity.”
Skewed markets and bottomed-out bond yields has also meant finding a way to diversify portfolios in the aftermath of the financial crisis has been a tough call, Cunliffe says.
Cutting through the noise of markets and examining the data are among the most important aspects of his investment strategy, but as important is also understanding investor behaviour, as what the economic text book says will happen is often far from the mark once human emotion enters the equation.
Key examples of this emotion overtaking a solid investment process was evident with both Brexit and the election of Donald Trump, Cunliffe says.
“One of the things it highlighted is the need for investment managers not to allow the emotion of a what is a disappointing event for them to affect their investment view.”
Many people “threw their investment toys out of the pram” after the UK voted leave the EU, Cunliffe says, based mostly on the feeling things would be worse off as a consequence when actually the fundamentals looked bright and the vote was followed by strong economic growth.
“It’s very easy to worry about Trump and trade for example without realising that the trade cycle is turning broadly positive. It’s very easy to worry about Brexit without realising the financial conditions are supporting growth, so I think Trump and Brexit are two case studies that make it clear you’ve got to look at what is in front of you.
“Too many managers often speculate ‘what if this, what if that’ and don’t often think about what’s in front of them.”
