Investment opportunity amid grey swans

With ‘grey swan' and uncertain events increasingly likely, cash will continue to offer flexibility, downside protection and the opportunity for discovery, according to IOOF.

IOOF fixed interest and cash portfolio manager, Juanita Escobar, said despite the fact that investors around the world were being affected by low and negative cash rates and bond yields, which were exacerbated by the increasing global savings from the ageing population, bonds and cash would remain as defensive havens for downside risk protection and capital preservation.

‘Grey swan' events were increasingly likely, so cash was king in long-term portfolio positioning, Escobar said.

‘Grey swan' events were more frequent than ‘black swan' events, as they could be anticipated to a certain degree, while they also had a sizeable impact on valuation security and the health of the overall market, she said.

The term ‘grey swan' evolved from the black swan event — an event that was far from expected and impossible to predict.

"While there is interest rate risk for longer-dated securities, particularly for stronger economies where interest rate hikes are more likely, bonds remain a valuable anchor in multi-asset portfolios due to their lower volatility versus risky assets," Escobar said.

Some Australian investors considered bond yields and cash rates expensive when compared to historic levels. Nevertheless, Australia could be considered a very attractive investment opportunity, considering other global economies had negative rates, Escobar said.