Preface

Ulrik Schytz

Since the late 2000s, we have experienced at least two out-of-sample events in financial markets: the global financial crisis (GFC) in 2007–09 and the Covid-19 related sell-off in early 2020. These events, combined with a structural fall in inflation expectations, have led to several fundamental assumptions being revisited. When I began my career, it was believed that negative interest rates could only happen in scenarios such as complete anarchy, where savers would pay others to protect their money against robbery; yet today, the situation applies for government bonds in many OECD countries. Other key structural cases have been the rising share of global GDP and wealth in Asia, as well as the dominance of tech companies in global equity valuations.

These experiences underpin the need for building portfolio resilience. One simply has to acknowledge that the future is highly unpredictable. The Greek philosopher Socrates expressed this elegantly more than 2,000 years ago: “I know that I know nothing. Hence, I am wiser than the rest”. The equivalent approach for an investor today would be to build a robust ex ante framework around the portfolio construction that has stress-tested