The half yearly report which clients should have recently received gives annualised returns for the LWM portfolios.

The lower risk portfolios have outperformed their riskier siblings, this appears anomalous, why have lower risk strategies worked better and what has been the value of accepting higher risk when this has been unrewarded?


The answer to why this has occurred is retraceable to the extraordinary events of late 2008. The meltdown in valuations at this time defied conventional theories of correlation and risk (this is to say that ALL ASSETS got equally marked down, the supposed safer assets were hit as hard as the more volatile and risky).

At this time people liquidated everything they owned; bonds and property were sold at huge markdowns just to get cash, along with shares.

Once the panic subsided and it was possible to more calmly reassess risk, the assets which recovered quickest and which registered (for them) extraordinary gains were bonds and lower risk assets, in general.

The lower risk portfolios have therefore returned historically abnormally high returns over the last three years, and this has been further enhanced by the more recent volatility and the flight to safety. We suspect that this has been overdone however and will rebalance.

So, we can expect for the more natural order of returns to reassert themselves over time.

Lower Risk:                  Less volatility but lower growth

Higher Risk:                 Higher (sometimes much higher) volatility but higher average returns over the medium to long term

We don’t believe markets can be pre-read but we are confident that with the current low P/E levels of high quality shares when confidence returns shares are likely to perform well.


NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.