Zed Francis, chief investment officer at Convexitas, joins Jack to talk about interest rate risk, what really happened to the British pension system, and tail risk as a portfolio diversifier. Francis argues that December 2022 will see a wave of mandatory liquidations by the U.S. retirees forced to take mandatory distributions on their retirement accounts. These forced sales will be larger as a percentage of the typical 60/40 portfolio than they normally are, due to the drawdown in stocks and bonds that have already occurred this year. Filmed on November 8, 2022.
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About Convexitas: https://www.convexitas.com/
Convexitas’ piece on Liability-Driven Investment (LDI): https://www.convexitas.com/insights/liability-driven-investment-de-risking-if/
Convexitas’ piece on duration risk: https://www.convexitas.com/insights/rates-free-risk-duration-duration-everywhere/
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Timestamps:
(00:00) Intro
(00:33) The Financialization Of Everything
(10:27) Private Markets
(17:01) Duration (Interest Rate Risk) Explained
(19:35) The Losses From Rising Rates Are Immense
(26:26) The U.K. Pensions Crisis - Explained In Great Detail
(38:41) Stocks and Volatility
(41:53) "Ignore The VIX"
(45:19) Tail Risk
(50:47) Are Active Investment Managers Underweight Stocks?
(01:00:07) The Different Phases of A Bear Market
(01:07:46) The Credit Markets Are Frozen
(01:10:21) A "Waterfall of Liquidations" Is Coming From Forced Selling From Retirement Accounts
(01:19:45) The Value Of Portfolio Overlays
(01:26:00) Basis Risk
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
