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Two recent developments — the accelerating focus on ESG and more aggressive policy interventions — could well change the way we invest in years to come. My perspective is that of a fixed income manager, but I believe these developments will impact all asset classes.
A growing societal and market focus on environmental, social, and governance (ESG) issues has kickstarted a reallocation of capital, which creates new opportunities and risks for fixed income and other investors.
The reaction function of the US Federal Reserve and other major central banks has been compressed over the last 30 years while the breadth of their interventions has expanded significantly. Central banks responded to the global financial crisis with significant quantitative easing and have revived and broadened these programs during the COVID-19 pandemic.
This has been accompanied by fiscal policy action, including direct cash payments, at a scale and speed that is truly astonishing. This sets a blueprint, in my view, for a more short-term-oriented fiscal policy.
Based on the success of the current interventions, I think it is likely that this playbook of rapid monetary policy intervention, coupled with fiscal measures, will be deployed more quickly when the need next arises, with both monetary and fiscal policymakers potentially adding further tools. And the 2020s may well see further crises as economies and markets adjust to a more uncertain environment marked by geopolitical shifts, increased climate action, and digital disruption.
To what extent both developments will change the investment landscape is hard to tell at this stage. What is certain, in my view, is that investors need to take note and proactively review their investment approach
1Bloomberg Intelligence, 23 February 2021.
Our approach to sustainable investing
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