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David Roberts
David Roberts 13-09-21

The definition of insanity or the ECB’s approach to QE?

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise.

Markets have once again been reassured by benign central bank policy. The European Central Bank has confirmed it will continue to provide free money, albeit at a reducing pace – not so much tightening as reduced easing. But it lacked the courage to refer to this as tapering or to discuss its plans to bring asset purchases back further.

We need to remember that extreme accommodative policies like quantitative easing and NIRP (negative interest rate policy) had never been tried in the real world prior to Japan two decades ago. But the ECB and other central banks have been all too eager to jump at the chance to deploy these measures since the global financial crisis, and they are utterly convinced of their success.

Why does the ECB continue with emergency rates, with the same, decade old policies, at a time fiscal response has been significant and surely the worst of the lockdown measures are behind us? Give us some confidence, let us believe you think the future might actually be OK. Encourage us to invest in ideas, discourage us from making the same safe, stock buyback, dividend pushing, core economy easy wins. Try something different!

If not, Europe can look forward to another decade of relative inefficiency. Pray there is no more crisis, for the central bank is still fighting the 2008 one!

Bond yields across the G7 remain incredibly low of course. Neither the Federal Reserve nor ECB seem in any rush to push them higher. Market bears have been all but beaten into submission. It seems the vast majority of policymakers are aligned in wanting to erode the real value of debt. This is classic financial repression, enabling governments to improve their debt metrics over time in a system rigged by central banks.

For bond investors, the free ride on beta is still over: while we do not expect exceptionally loose monetary policy to be brought to an end soon, there clearly isn’t room for it to get any looser.

Bond investors will therefore need to produce more alpha to generate positive real returns for investors.

Although there is little positive prospect of taking directional positions in core bond markets for the longer term, we are still finding sufficient alpha opportunities via curve positioning, cross-market trades and alike. We also think that high yield is one of the few areas of the bond market to offer inflation-beating income, so we are happy to have exposure to this area.

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Key Risks 
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Investment in Funds managed by the Global Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies which may have the effect of increasing volatility. Some of the Funds may invest in derivatives. The use of derivatives may create leverage or gearing. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
David Roberts
David Roberts
David Roberts joined Liontrust in January 2018 from Kames Capital to co-create the Liontrust Global Fixed Income team. David was previously Head of Fixed Income at Kames Capital and since 1988 has also worked at Britannia Investment Managers and Lloyds Bank.

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