208. Recession, adding risk and the dangers of overreacting to 24-hour rolling news

David Coombs, manager of Rathbone Strategic Growth Portfolio, tells us why he has been adding risk to his fund throughout 2022, despite the threat of recession. He also highlights some of the opportunities his team have been finding in both the bond market and tech stocks this year. He also explains why the current crisis is no different to anything else he has experienced in the past four decades and why investors should not overreact in periods of geopolitical instability. David also outlines his expectations for inflation and why he tries to ignore the noise around the growth/value debate.
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The Rathbone Strategic Growth Portfolio focuses not only on returns, but also on risk and correlation. Manager David Coombs uses a disciplined asset-allocation framework and a forward-looking assessment of correlation, risk and return, as the cornerstone of the investment process. Asset classes are then divided into three distinct categories – liquidity (those that can be bought and sold easily), equity risk and diversified.

What’s covered in this episode:

  • We’ve been in the recessionary camp for 12 months – it’s been lonely
  • Inflation probably falls to 3-4 per cent in the next 12-18 months.
  • Why we will have a deeper recession in the UK and Europe
  • “Testing our resolve” – adding to tech names as their prices kept falling in the first half of the year
  • Buying US, Canadian and Australian 10-year bonds to mitigate recessionary risks and using their cash allocation
  • How a big dislocation in markets has allowed them to find lots of mis-priced investment opportunities – many of which are uncorrelated to markets.
  • Preferring commodities over property and infrastructure
  • Why this crisis is no different to any other he has seen in the past four decades
  • Taking emotion out of investing and adding risk to the portfolio throughout 2022
  • It’s not about growth or value – it’s about investing in businesses that grow
  • Why investors should switch off the noise and not panic into making short-term decisions.
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