Mark Dampier: 'Risk fatigue' may have set in, but investors must stay alert

The Analyst

I saw one writer recently refer to investors as suffering "risk fatigue". It's a perfect description of today's environment. Since the onset of the financial crisis in 2008, we have had the varied afflictions of banks to contend with.

Just as we thought their wounds might be healing, we find damage has not been mitigated, but transferred. Now sovereign nations face huge debt mountains and liabilities that must be paid for – huge challenges in an environment where growth is drying up.

It is one thing to restructure a bank but quite another to restructure a country. At least a board of directors can generally agree on an appropriate course of action. For politicians, challenged by opposition parties and swayed by the electorate, things are less straightforward. Many suspect the US will be a textbook case in the run up to the November presidential elections, but, for now, the spotlight remains on Europe where the politicians' bluster continues.

Tiredness among investors has set in. How many more times is the euro going to hit the headlines? How many more bailouts and broken promises? How many more summits will there be to save the euro? I suppose the fatigue is due to the absence of a firm solution – good or bad. None of the wayward countries have been fixed, but neither has their fate been sealed outside the single currency.

This frustrating lack of clarity is what spooks the markets. Investors, at the mercy of the utterances of politicians, are understandably scared. Yet we are now at the stage where much of the bad news must be priced in – even a Greek exit. I am reminded of what happened in September 1992 when Britain left the Exchange Rate Mechanism. An initial market fall was very soon reversed. A resolution to the uncertainty meant the market not only bounced back, but continued rising strongly thereafter.

Most investors and asset managers have had plenty of time to reposition their portfolios. The markets have been largely stagnant. Having made their allocations to cash, fixed interest and equities, many are simply sitting on their hands waiting.

It seems that given the uncertain economic environment, portfolios are generally defensively positioned – perhaps too defensively.

Markets seem to be ignoring the bad news recently, and I think this is a promising sign. Company results too provide some reassurance. Despite the economic backdrop they have been quite good. Businesses, especially larger ones are also cash rich, though like investors they are hesitant to deploy their capital. With investors favouring traditional safe havens such as government bonds in the US, UK and Germany, yields have been driven down to levels not seen for 300 years.

It points to the fact that "risk" assets are better value. In fact, it turns the whole concept of risk upside-down. The resolution of problems in the eurozone could, for example, see southern Mediterranean debt soar and perceived safe havens such as gilts tumble. This could have knock-on consequences for corporate bonds too. Investors need to keep a close eye on what is a changeable situation and ensure they are aware of all the risks – not just the obvious ones such as chaos in Europe or a Chinese hard landing.

In a low-growth environment I still favour equity income funds such as Invesco Perpetual Income, Marlborough Multi Cap Income and J O Hambro Equity Income. As they provide a periodic, high level of income, at least you are paid to take risk and await a sustained market recovery. Investors shouldn't ignore more growth-orientated trusts either. Three UK funds that spring to mind are AXA Framlington UK Select Opportunities, Old Mutual UK Dynamic Equity and Liontrust Special Situations, all of which have first-class managers at the helm capable of extracting the best of any market surge.

You may well be suffering from risk fatigue, but don't assume the risks you fear will be the ones that will bite you. It may be investments that you consider safer will turn out to be the problem.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit

voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
voicesSiobhan Norton on why she eventually changed her mind
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
Life and Style
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    PMO Analyst - London - Banking - £350 - £400

    £350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Insight Analyst – Permanent – Up to £40k – North London

    £35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

    Test Lead - London - Investment Banking

    £475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

    Day In a Page

    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Climate change threatens to make the antarctic fur seal extinct

    Take a good look while you can

    How climate change could wipe out this seal
    Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

    Crowdfunded novel nominated for Booker Prize

    Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
    Tour de France effect brings Hollywood blockbusters to Yorkshire

    Tour de France effect brings Hollywood blockbusters to Yorkshire

    A $25m thriller starring Sam Worthington to be made in God's Own Country
    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it