Archived insights remain available on the site. Please consider the publish date while reading these older insights.
archive

What risks is the market most complacent about?

While the main risks to economies and markets are usually pretty obvious, asking which risks investors are currently underestimating can provide potentially much more useful information.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

Every quarter, we survey around 100 of our Wellington colleagues in different investment disciplines and locations to get their views on what we see as the key macro questions of the day. 

We believe that the framing of the questions is crucial. For example, many surveys ask respondents to list what they see as the current key risks. In our survey, we ask for the top three risks our participants believe the market is most complacent about. That requires them first to think about the risks — which are often fairly evident — and then to grade them on how far they are priced into markets. For us as investors, that is clearly the more important information, as it can help us to identify areas where the markets are mispricing risk and thus creating potential opportunities.

Figure 1 shows this quarter’s top responses. It reveals that the participants think the market is most complacent about the economic damage from the COVID-19 pandemic. The next greatest risk is a sharp rise in inflation. In third place is the state of government and corporate balance sheets.

We compared these results with our previous quarterly surveys and found that, over the course of the last six months, the participants have become less worried about market complacency regarding COVID-related economic damage. However, inflation concerns remain largely unchanged since last quarter.

FIGURE 1

Survey participants' view of which risks the market is most complacent about

Superforecasting in practice

The Wisdom of Wellington Macro Study originated from a conversation we had over five years ago about Philip Tetlock and Dan Gardner’s book Superforecasting. Tetlock and Gardner argue that forecasting is a skill which can be improved, and we thought their theory could work well in practice at Wellington, given the firm’s collaborative culture. The hope was to sharpen our collective and individual forecasting skills, enhance our internal investment dialogue, reveal where our views differ from the market consensus and identify how they change over time.

In January 2016, we launched an internal survey of macro thinkers across all disciplines, asset classes and office locations. The responses are anonymous. The precise formulation of the questions is important. Wherever possible, they are precise, time-bound, measurable, probabilistic and rollable from one quarter to the next, giving us a richer data set over time.

Please refer to this important disclosure for more information.

Recommended for you

Monthly Market Snapshot: June 2021
A monthly update on equity, fixed income, currency, and commodity markets.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Monthly Market Snapshot: June 2021
,
publish
Financial Market Review: Second quarter 2021
A quarterly review of results in the global equity, fixed income, currency, and commodity markets.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Financial Market Review: Second quarter 2021
,
publish
Mid-2021 Investment Outlook
As you look ahead to the second half of 2021, thought leaders from across our investment platform share their views on pressing questions.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Mid-2021 Investment Outlook
,
publish
Investing implications of a three-speed economy
Multi-Asset Strategist and Portfolio Manager Nick Samouilhan and Investment Directors Andrew Sharp-Paul and Matthew Bullock highlight how key regional differences globally have led to three distinct ”blocks” of the world economy.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Investing implications of a three-speed economy
,
publish
<span>Insurance Multi-Asset Outlook — </span>The rising tide of inflation: Risks and opportunities for insurers
COVID vaccination progress and ample policy support may warrant a more pro-risk investment stance going forward, but persistent inflation concerns continue to loom. Multi-Asset Insurance Strategist Tim Antonelli and Investment Strategy Analyst Daniel Cook share insights to help insurers navigate these competing forces.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Insurance Multi-Asset Outlook — The rising tide of inflation: Risks and opportunities for insurers
,
publish
Tim Antonelli
 CFA, FRM, SCR
2021 Alternatives Annual Meeting Highlights
This highlights reel offers a quick look at the topics that are top of mind for our alternatives investors, from credit market dislocations to emerging market themes to cryptocurrencies.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
2021 Alternatives Annual Meeting Highlights
,
publish
<p style="font-size: 13px; margin:7px 0;">FUTURE THEMES | SCIENCE</p>Genomic testing and the future of medicine
We explore the future of genomic testing, the therapeutics it enables, and its impact on the health care system as a whole.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021

FUTURE THEMES | SCIENCE

Genomic testing and the future of medicine
,
publish
<span>Multi-Asset Outlook — </span>Inflation is here: How long, how strong?
Weighing the potential for inflation pressures to threaten the recovery, Nanette Abuhoff Jacobson and Daniel Cook offer their views on the second half of 2021, including what makes European, EM, and value equities attractive.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
July 2021
Multi-Asset Outlook — Inflation is here: How long, how strong?
,
publish