The head of investment research at the world's largest hedge fund says most portfolios are too concentrated in stocks

  • Bridgewater’s Karen Karniol-Tambour told Bloomberg on Thursday that the “new era” of economic policy is the coordination of monetary and fiscal policy.
  • Changes in interest rates and quantitative easing are no longer the primary drivers of economic cycles, she said.
  • She added that this new era of policies requires a diversified portfolio in case of inflation – most portfolios are too concentrated in stocks and should add in gold or inflation-linked bonds.

Karen Karniol-Tambour told Bloomberg on Thursday that “as the world changes, investing needs to change with it,” and broke down a macro-economic signal that could justify why investors too concentrated in equities should diversify.

The Bridgewater Associates global head of investment research said that in most of modern history “interest rate changes were the primary driver of economic cycles.” After the financial crisis, quantitative easing, or printing money, became the primary driver. But now, there’s a “new era of policy.”

The current most important lever controlling economic cycles is the coordination of fiscal and monetary policy, explained Karniol-Tambour. It’s “printing money on one hand, and on the other hand running large fiscal expansion packages,” the investment chief said. She added: “That combination means that printed money can make it into the hands of those who need it through the fiscal package.”

While central banks and the ECB have said for a long time that they need this fiscal coordination, the coordination hasn’t happened in large part, around the world, until the pandemic, said Karniol-Tambour. The COVID-19 crisis was when “it became more clear and obvious that without fiscal stimulation we simply will not get out of the current downturn.”


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There are investment implications to be drawn from this macro view. Karniol-Tambour said that for Bridgewater, the largest hedge fund in the world with more than $US160 billion in institutional investments, “understanding how the world works is the single most important input to figure out how to invest.”

For example, the new levels of coordination between fiscal and monetary policy have left over a lot of money to go into the stock market, she explained. But, she said “most portfolios are already too concentrated in equities, so where a lot of our research has been is what are the most important assets to diversify equities in this environment of fiscal and monetary coordination?”

Karniol-Tambour identified gold and inflation-linked bonds as two examples of diversifying assets that can be “very important to investors right now.” She said that if policy makers don’t succeed in getting the economy going, “they could easily succeed in still reflating.”

“Yesterday’s inflation print really reflected that inflation is recovering much faster than in prior recessions, which is reflective of this new era of policies that we’re in, and how important it is for investors to balance their equities with something that will help them in a case of inflation,” Karniol-Tambour said.

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