Bailey McCann, Opalesque New York: Credit Suisse Asset Management has released a new whitepaper which says that the 'new normal’ for investing will be defined by highly volatile markets and low yields. The paper "New Normal Investing: Is the (Fat) Tail Wagging Your Portfolio?" authored by Yogi Thambiah and Nicolo’ Foscari, both from the Investment Strategy Americas CIO Office, builds on the thesis stated in earlier papers from the two authors and provides prescriptions for adjusting risk frameworks to be more responsive.
According to the authors, fluctuations in risk appetite will be more frequent and portfolio returns will be increasingly derived from the tails going forward. In order to be responsive to this managers and investors alike will have to adjust their overall risk framework and look at strategies that when blended with traditional beta can reduce downside risk and mitigate unfavorable return distributions.
Data in the paper shows that the intervention of central banks coupled with global deleveraging and fiscal austerity measures have slowed growth while increasing overall market volatility. "In our view, we believe
the aggressive tactics undertaken by policy makers over
the past several years have driven economies and markets
to become increasingly reliant on these interventionist
measures. This may, in turn, contribute to an extended
period of market uncertainty and volatility. Also, the US
Treasury market has been in a decades-long, secular bull......................