1. role of the various groups of investors? Hedge funds
are geared more to the short term than pension
funds and other institutional investors. They have
different objectives and employ different types of
professionals. Which groups of investors are
dominant, compared with previous years, and where
are they over and under-invested? In what direction
are global capital flows moving? Are cash holdings
larger than average?’
From these perspectives, we seek to know a
market as closely as possible and to fathom the
emotion in it. We don’t just rely on our own
extensive research, but also use external data
produced by strategists at investment banks and
independent institutions and individual academics,
for example. We try to generate information on
matters like investment trends and investor
sentiment in as many ways as possible. We also
continue to use pricing models, but decision-
making processes based on market evolution now
weigh heavier than in the past.
Our knowledge of how the economy and markets
work has increased considerably over the past few
decades, but new developments always create new
uncertainties. Just think of the possibilities that
information technology has created for data
gathering and massive order processing without
the direct intermediary of dealers. There’s always
more we don’t know than we do know. And
moreover answers to questions can become
obsolete more quickly than most can imagine.
The credit crisis impinged on the fundamentals
of the market economy. Quantitative models
developed to convert uncertainties into measurable
risks appeared to have created imaginary
certainties. Under the influence of human
emotions, particularly fear and greed, markets
appear to be gripped by herd-like behaviour and
disruptions. Emotions can have such an influence
that markets can no longer function. Due to the
credit crisis, the results of economic research on
efficient market theory as a source of knowledge
have come under pressure.
It’s nothing new for emotions to play such a role.
The world experienced bubbles hundreds of years
ago; the tulip mania in the Netherlands between
1634 and 1637 is one example. The difference is
that financial markets have grown enormously in
importance in recent decades. They are now many
times bigger than the real economy – meaning
means shocks in the financial world can have a much
greater impact on the actors in the real economy, on
consumers, businesses and governments.
Financial markets can even give rise to self-
fulfilling prophecy. Fears of investors can infect the
real economy. More so, fears that a eurozone
country will no longer be able to meet its debt
repayment can become reality. Market fears can
drive up the interest rates that a country must pay
to such heights that the country’s fundamentals
come under (further) pressure. However,
sometimes this feedback loop does not materialise
and a qualitative assessment therefore becomes
an important part of the analysis.
Our stance when taking positions in our tactical
allocation is different in a number of respects from
the way it was before the credit crisis. This has to
do with the changes in the investment
environment. There are major imbalances in the
global economy, so it is consequently less able to
absorb shocks that may occur, such as a financial
crisis or a sharp rise in oil prices. Economic cycles
have become shorter. to earn money for clients, we
need to be quick to respond to opportunities that
arise. Due to the greater vulnerability of the
economy, opportunities can soon disappear. Risks
quickly increase. This does not mean we ignore the
longer term, but we have paid more attention in
recent years to current dynamics in the market and
to factors that explain investor behaviour. In our
job it is important to realise both financial
economic reasoning and emotions play a part in
the markets.
What are the empirical trends in a market? Which
groups of investors operate in a market? What is the
Tactical Asset Allocation at ING Investment
Management: A Never-ending need to generate
new knowledge
Valentijn van Nieuwenhuijzen
Head of Multi Asset
Building Multi Asset strategies that work
‘Financial markets can
even give rise to self-
fulfilling prophecy. Fears
of investors can infect
the real economy’
‘It is important to
realise both financial
economic reasoning and
emotions play a part in
the markets’
SPONsorED STATEMENT
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