InPerspective - Volume 3

The backdrop to financial markets has become increasingly challenging in recent months, and the outlook for investors is sensitive to considerable challenges. Will the weakness in recent economic data prove to have been a blip, or a portent of a longer-lasting slowdown? Will politicians succeed in maintaining a firebreak in European sovereign bond markets, or will the flames from Greece ignite other more significant parts of the eurozone, and particularly the banking system? Will US legislators cease squabbling in time to reach an agreement on the country's government debt, or will the slim chance of a US default become larger? How will central bankers seek to square the conflicting threats of rising inflation and slowing economic activity in their approaches?

In such an uncertain and febrile environment, financial markets are likely to remain volatile. The prospects for companies, and for investors in their debt and equity, are broadly appealing; corporate earnings continue to grow healthily, balance sheets are robust, and borrowing costs for higher-quality businesses are low. However, in the first article of this edition of inPerspective, we explore the concept of 'de-risking' for investors facing challenges in seeking to meet their funding commitments and aspirations. We consider some strategies which we believe should be beneficial to clients who propose to de-risk their portfolios, and we evaluate the prospects for financial markets.

In our second article, amid the significant upheavals in sovereign bond markets in Europe, we evaluate the outlook for fixed income investors. We explain the advantages of a global approach to bond and currency investing, both in diversifying risks and in seeking to generate positive returns in a rising interest rate environment.

We hope you enjoy this edition of inPerspective.