Caution urged on composition of investment portfolios

Captive boards are urged to adopt a long-term perspective when managing their investment portfolios, given the recent surge of unprecedented economic challenges.

This counsel emerged from a panel at the ongoing Vermont Captive Insurance Association (VCIA) annual conference. The panel discussion, titled 'The Economic Landscape & Your Captive’s Investment Portfolio', featured Kelly Mahncke, Assistant Executive Director of Finance at Hockey and Rink Protection, and Scott Mildrum, Macro Strategist at Performa.

Following over a decade of low interest rates, controlled inflation, and decreasing unemployment, the post-COVID economic landscape has transformed significantly. The panel concurred on the global central bankers' assertive, synchronised efforts to counter 40-year highs in inflation.

Consequently, hyper-accommodative monetary policy led to substantial asset repricing as interest rates surged and risk markets underwent sell-offs. The session provided an overview of the US economy, macroeconomic trends, global monetary policy, prevailing interest rate trajectories, and capital market robustness.

The panel underscored the unprecedented shock caused by COVID-19 on the US market, whose equilibrium remains unrecovered, compounded by subsequent commodity price shocks and a resurgence of elevated inflation levels.

During the session, Mildrum highlighted that the US remains within the realms of inflation's uncertainty, despite its gradual decline. He expressed doubts regarding whether the US economy is steering towards a soft or hard landing, the latter potentially inducing a recession. He advised cautious investment sentiments.

Although 2023 witnessed a positive start, marked by strong performance in fixed income and equity markets, Mildrum emphasised the need for a long-term investment focus, disciplined strategies, and meticulous asset allocation review, including potential reductions in overweight positions.