Publications

After a period of low and even negative interest rates in 2020 and 2021, rates soared in 2022 and have remained high. In this article we want to address several topics. First, we illustrate what the impact on expected returns has been with a Capital Market Assumptions (CMA) model. One of the main observations is that the risk premium of equities versus bonds has declined. The second section provides explanations as well as justifications. In short, a lower equity risk premium (ERP) is not just a reflection of equities being expensive, but is justified as bonds have become riskier relative to equities. Finally, we show the extent to which the change in interest rates and CMAs leads to different ‘optimised’ portfolios. The rise in yields and the lower ERP result in more fixed income assets and fewer equities in portfolios in 2024 than in 2020. Optimised fixed income portfolios, from an asset only perspective, consist of cash and spread products, but do not contain any government bonds. That holds for both 2020 and 2024. Furthermore, the rise in riskfree yields has resulted in IG Corporates gaining a place in the spread portfolios at the expense of riskier spread products such as emerging market debt (EMD) and high yield. Within equities, developed markets have become less attractive compared to emerging markets due to increased volatility. Finally, lower risk portfolios have experienced an increase in expected return benefitting from higher yields, while higher risk portfolios have become more diversified, as differences in expected returns between (fixed income and equity) asset classes have become smaller. 

If you were in AI in Financial Services in 2023 it was a wild ride. Whereas AI was a tough sell in previous years; executives didn’t see the value, and readily cited explainability, or untested outcomes as a reason not to pursue the technology. Machine learning was quietly being used by quants and hedge funds, but mainstream financial services were asleep at the wheel. Then, OpenAI launched ChatGPT, and the world literally changed overnight, suddenly budgets were open, and expectations were sky high!

In the dynamic domain of investment management, a discernible paradigm shift is underway, compelling practitioners to reassess traditional approaches within an evolving landscape. Central to this evolution are dynamics that extend beyond customary metrics, prompting investment managers to synthesize considerations at the intersection of technological advancement and ethical responsibility. Against the backdrop of market adaptability to transformative forces, astute managers find themselves positioned at a juncture where exploration of emerging technologies converges with a conscientious appraisal of broader societal and environment imperatives.

Tijdens een etentje met vrienden ontstond vorig jaar een verhitte discussie over ChatGPT, dat toen net gelanceerd was. Er waren twee kampen: de sombermansen die in ChatGPT de ondergang van het kritische denken zagen, de doodsteek voor de creativiteit, het einde van vele mooie beroepen. Aan de andere kant zaten de techoptimisten – waar ik mezelf toereken – die van een mooie toekomst droomden waarin ChatGPT de saaie routineklusjes overneemt waardoor er meer tijd overblijft voor het diepe en echt creatieve denkwerk. Het werk zou alleen maar leuker worden, de wereld mooier. De sombermansen lachten schamper over zoveel naïeve onnozelheid. De techoptimisten wezen er fijntjes op dat de grammofoon de musicus niet werkloos had gemaakt en de digitale camera de fotograaf niet overbodig.