Even as global leaders are joining forces to prevent the eurozone debt problems from spreading further, investment managers are deploying new measures to better protect their portfolios against a deepening crisis.
Two years after the initial bailout of Greece was announced in May 2010 and following a crucial election this month in which Greeks effectively decided to stay in the eurozone, the crisis is morphing from a short-term factor into a long-term consideration for portfolio managers.
“It's hard to continue to describe this as a crisis, it's beginning to become status quo,” said Dan Morris, executive director and global strategist at J.P. Morgan Asset Management, London.
Peter Halligan, co-head of multiasset research at Aon Hewitt, London, said managers “certainly have had to consider issues they haven't been presented in quite this way before.”
Initially, many investors took a short-term opportunistic approach to investing in the eurozone, following a pattern of buying cheap assets with the expectation that government intervention is around the corner, then exiting shortly after the policy announcement.
“There's now a migration away from this opportunistic approach,” Mr. Halligan added.
With each phase of intervention, “clearly, the medicine is getting less and less effective,” said Simon Savage, co-portfolio manager and head of risk in the $1.7 billion European Long Short Fund at GLG Partners LP, London, which is part of Man Group. Following an announcement June 9 of the e100 billion ($126 billion) bailout for Spanish banks, the market rally lasted about three hours, Mr. Savage said. “After the Greek election (on June 17), the euphoria lasted about three minutes.”
“Tactically, portfolio managers have to be aware of that and change ... techniques for managing money accordingly,” Mr. Savage said. GLG had $28.6 billion in total AUM as of March 31.
All managers interviewed firmly believe that a breakup of the euro is unlikely, but the chance — however small — is rising. As a result, more safeguards are being put in place as “the muddling-through environment will go on for a while, perhaps years,” said Christophe Caspar, chief investment officer for multiasset solutions at Russell Investments, London.
In some cases, managers are tweaking the investment process itself to better reflect the current investment environment. At Aberdeen Asset Management PLC, an adamantly bottom-up fundamentally driven manager, top-down factors are playing a bigger role in portfolio strategies.