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LGT Investorama: Reliable unpredictability or unpredictable reliability?

April 15, 2021

How fundamentally different the thought process for writing an editorial was just twelve months ago compared to today! We were excited to start a new decade: leaving behind as many legacy issues as possible to set off hopefully with new, promising topics and concepts into the “Roaring Twenties”...

And then the COVID-19 pandemic hit us unprepared and with the force of a punch right in the face. Not us as a company, but us as a society. It has since become clear that the outlook will remain unpredictable for some time to come. This is not primarily coronavirus-related but the result of a disproportionate lockdown anesthetization of all socio-economic life in many places. As with any “medication,” the long-term side effects and resulting damage from this worsen as the dosage increases.

Similarly to machinery and cars, reliability and predictability are considered virtues in human typology, while unreliability and unpredictability are perceived as flaws – in both the private sphere and companies: for example, with suppliers, clients, or even debtors. People like to know where they stand – the former VW slogan in Germany “Da weiss man, was man hat” (“you know what you’ve got”) still sounds mainly positive today, and perhaps a little boring only in exceptional cases...

For more than a year now, the experience of how microscopic pathogens could throw the most powerful political decision-makers off course, which was unimaginable until recently, has had and continues to have a correspondingly stressful, even shocking effect. Angered by alarms in the media and under pressure from supposed experts, many have followed the principle of trial and error, i.e.: ordering more and more disproportionate measures in the dark, resulting in increasingly unpredictable collateral damage for some of those affected. And Big Government sends its regards: The – on balance – vigorously increased tendency toward greater state intervention including typical hallmarks of a planned economy, will probably be difficult to reverse even after the hoped-for abatement of the pandemic.

Conversely, from an economic and financial market perspective, the mainstream principles of monetary policy have shifted in a diametrically opposed direction. In the past, monetary policymakers were and had or wanted to be perceived as unpredictable. No central bank governor would ever have committed in advance to sticking to a particular interest rate regime for any length of time, with the – old-school – understandable reasoning of always setting the future monetary course based on the interim performance of the economy. In modern times (which did not begin yesterday), the opposite is true: Today’s economic players are reliably guaranteed to stick to an ultra-expansive course – with no ifs, ands, or buts, and thus no expiry date. What appears all the more unpredictable despite the predictable “forward guidance” is the new premise that the phenomenon of inflation can never emerge again...

In times when many – for some, too many – changes lie ahead, people appreciate certain constants all the more. LGT Capital Partners has been managing the Princely Strategy, our flagship portfolio of traditional and alternative assets, for 22 years with an almost unchanged investment team over the long term, globally diversified, and with disciplined risk management. In our strategic asset allocation, we use the scenario approach to systematically address very different future paths – both positive and negative – and their influence on financial markets, with the aim of creating a largely robust portfolio. And we have been explicitly incorporating behavioral finance findings into our tactical investment processes since the launch of our product.

We cannot and do not want to unleash a torrent of enthusiasm with this. Our tried and tested approach over more than 20 years, and therefore also over several economic and stock market cycles, aims instead to ensure continued sustainable growth, and in doing so vouch reliability which, although it cannot promise exact predictability ex ante, never exhibits traits of unpredictability.

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