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Alternative Market Briefing

Credit Suisse says investing driven by high volatility, low-yeilds the 'new normal'

Wednesday, April 11, 2012

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......................

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