Gavyn Davies, chairman, Fulcrum Asset Management
and founding partner, Prisma Capital Partners
In 2006, a single common factor, global risk appetite,
tended to dominate the pattern of returns on virtually all
asset classes throughout the year. When global risk appetite
was rising, as it was for most of the year, equities
outperformed bonds, and the higher risk parts of both the
equity and bond markets outperformed safer assets. This factor
also dominated the pattern of hedge fund returns.
There are basically two explanations for the rise in risk
appetite which has gripped the world markets since 2003 - one
benign, the other less so. The benign explanation is that the
decline in risk premia has followed naturally from the decline
in market volatility, which in turn has been caused by the
strong and stable performance of the global economy over that
Not only have we seen global real GDP rising...