Active Investing for Today's Markets
Given the level of risk we are see in the current environment, one might expect assets to be priced at a discount so that investors could be compensated with higher rates of return. Instead, what we see today is exactly the opposite: Asset prices are generally high, not low. In the bond market, there are trillions of dollars of sovereign bonds that bear negative interest rates. In the equity markets, price/earnings ratios are at above-average levels. While we don’t have a crystal ball at First Eagle, we do have a sense of current valuations and of the underlying vulnerabilities in the system. Over the next five to 10 years, we see the prospects for financial markets as muted. If the broader markets themselves are priced for low returns, investors who choose passive vehicles face the prospect of singularly disappointing returns over the long term.