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.
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.