Search this website. You can use fund codes to locate specific funds

Keeping risk on the radar in calm conditions

Investors shrugged off the political shocks of 2016 with stunning nonchalance: the immediate effects of Brexit lasted less than a week, the election of Donald Trump was dealt with in a matter of days and the Italian constitutional referendum was forgotten in less than three hours.

Risk assets, it seems, are all the rage (again).

The FTSE and Dow Jones Industrial Average indices reached record highs this month, as the latter passed 20,000 points, an allegedly significant amount, despite the Federal Reserve hiking rates in December.

But where is risk as we begin 2017? A brief glance at commonly used indicators suggests that danger has disappeared from the radar screens. Across the board, long-term implied volatility measures – including the often-referenced Volatility Index (VIX) – fell throughout 2016 for all asset classes excluding bonds.

Indeed, even volatility itself relaxed during the year, according to at least one measurement of expected market jitteriness. Forward-looking volatility expectations – as tracked by the VIX of VIX (VVIX) – fell during the December quarter with a blip at the time of the US election, in a pattern that sums up 2016.

Of course, this apparent lack of investor concern could be a warning signal itself. While one metric