Dan Fuss on the Biggest Challenge Facing Investors
Reflecting on his more than six decades as an asset manager, Dan Fuss says that climate change is now the greatest challenge facing society and the markets.
Fuss is vice chairman of Boston-based Loomis Sayles and manages the firm's flagship Loomis Sayles Bond Fund (LSBDX). He spoke on October 18 at the CFA Society’s annual fixed income conference, which was held in Boston.
Responsible policymakers, particularly central banks, are trapped by a “two-step environment,” Fuss said – climate change, which is happening fast, and the need for a global policy to address it.
Bill Gates says it is too late to control some aspects of global warming, like rising sea levels and air quality. But Fuss said the important first step is for the dominant political powers to unite. But, he asked rhetorically, how do you deal with the problem without getting China’s buy in?
Citing Thucydides, he said the lessons of history are that conflict of this scale normally ends in a shooting war. “We need to work together on a productive basis in a friendly rivalry,” Fuss said.
The U.S.-China relationship is the dominant theme for markets, according to Fuss, but other geopolitical tensions are at play. Net asset flows are from Asia to the safety of the U.S. and Europe. Japanese life companies are selling assets to invest in dollars. Political disorganization and regional clashes are driving those flows, Fuss said.
Migration from the Middle East has driven a lot of political tension and creates investment risk, Fuss said. “It alters where we put our money in the Loomis Sayles bond fund, to avoid unstable regions.”
Fuss acknowledged that political uncertainty plays a larger role in portfolio risk assessment. It is harder to tell whether measures will pass Congress, he said. Polarization, on a global basis, makes it much harder for compromise and to create positive economic frameworks. “This greater uncertainty increases investment risk,” Fuss said.