This article is part of a regular series of thought leadership pieces from some of the more influential ETF asset managers in the money management industry. Today's article is by Michael McClary, chief investment officer of Akron, Ohio-based ValMark Advisers, which markets the “TOPS” brand of asset allocation models.
The U.S government and associated regulatory entities are significant players in financial markets, and it doesn’t look like that will change any time soon.
While government intervention has ebbed and flowed over time, this phenomenon is particularly strong now and investors can’t ignore it. Each current investment decision that is made has to involve a speculation on which direction the government will take.
Like the majority of investment managers, we tend to favor capitalism and free markets. However, we understand those concepts don’t exist in the purest form. Governments will never allow capitalism to sprint and free markets to run free. As such, government intervention has become an essential factor in making investment decisions.
‘The Participation Trophy World’
PIMCO has gained fame with the phrase, “The New Normal.” We are now unofficially coining the phrase “The Participation Trophy World.” Many government actions over the last few years have been designed to avoid downturns and make sure there are no losers.
In a conceptual world of no winners or losers, you are left with only participants. As simply participants, it becomes less certain how to really win.
As current examples of this new reality, we will focus on:
- Central bank intervention
- The proposed Department of Labor conflict of interest rule
- Money market fund reform
- Systematically Important Financial Institution” designations
All four of these movements are born of the same stance governments have used since nearly the beginning of time. They are presented as ways the government is protecting investors, much like feudal lords protecting their peasants in the Middle Ages.
The basic principle, or at least implied goal, is that these actions will help stabilize financial markets and create a better overall investment opportunity. The principle of stabilizing financial markets, however, is in contrast to the basic fabric of risk and return. The global financial markets are a highly complex ecosystem.
We are concerned with the school of thought that governments can create growth and simultaneously save investors from losing money.