Issues & Answers Special Advertising Section
June 2020
Chip Clark
President
New England Asset Management, Inc.
“Be very disciplined in this market and know it’s OK to take risk, but just make sure you’re getting paid for that risk.”
What have asset managers learned from previous periods of economic uncertainty?
One of the things we’ve learned over the years is that periods of uncertainty and market dislocation generally create opportunities to buy high quality assets at attractive book deals. We think we’re seeing that again today much like we saw in 2008/2009. During this crisis, we’ve been active buyers of spread product at levels that quite honestly we haven’t seen in over a decade. We think we’ll be rewarded for that as markets tend to oversell in periods of dislocation.
What have we learned about investing in a low rate environment?
You need to remain disciplined, but don’t be complacent. In low rate environments, every basis point counts. As the book yield in your portfolio starts to decline as you’re investing at lower new money rates, the natural inclination is to want to take more risk. Whether that’s interest rate risk by extending duration, credit risk by going down in credit quality, increasing the allocation to structured product or potentially changing the mix of the equity versus fixed income allocations. We would tell insurance companies that this is a good time to take a hard look at how much risk you really want to take and is an opportune time to refresh the enterprise risk analysis that you’re doing. This is a good time to remain disciplined. Don’t be complacent. Don’t step aside. There are opportunities here.
Do companies sometimes make mistakes in a volatile investment environment?
We’ve seen a couple of missteps over the years. One is the natural inclination to want to sell and de-risk a portfolio at the wrong time. Generally, people who are selling on that instinct are leaving money on the table. The second point is waiting to try to time the market. That’s very, very difficult. What we typically like to do in periods like this is what we call “leg in thoughtfully.” It’s put money to work, but keep some powder dry. Typically, market dislocations will have what we call market rallies in bear markets and they can be a bit of a head fake. Leg in thoughtfully, keep some powder dry, you’ll probably get another bite at the apple.