In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton, talks about why we are not trying to build the portfolio that performs best if we're right. Rather, we're trying to build one that can still achieve its purpose when we're wrong.
(1:03) Do you think there's another shortage emerging that investors probably aren't thinking enough about?
(3:09) Japan still owns roughly **US$2.4 trillion of overseas debt**. So nobody is suggesting Japanese institutions are suddenly going to dump that portfolio and bring the money home, are they?
(3:49) But presumably Japan isn't the only reason yields are rising?
(5:16) Since the risk-free rate sits underneath almost every asset valuation, this rise in bond yields, the rise in bond yields is becoming an equity market story as well.
(6:23) We've talked about the price of capital. But you had an interesting question from a client last week which takes this discussion in a slightly different direction. That's the location of capital.
(8:09) But gold is gold, so why does it matter whether it's sitting underneath New York, London, or Amsterdam?
(9:01) So this is not just a gold story, is it? I remember during the GFC, it was important to know which bank kept your savings because some of those banks were ring-fenced by the government, but others weren't.
(10:24) This is almost precisely the philosophical change we've been making in our new asset allocation methodology.
(12:13) One of your strong criticisms of the traditional way we label assets in a portfolio is the label itself. What do you mean by that?
(13:22) How does your methodology deal with that?
(14:34) And what would today's discussion change?
(16:53) That sounds less like optimization and more like engineering, doesn't it?
(17:38) But presumably there's a cost to doing that
Tracey McNaughtonGuestEdHost