What decades of managing US crises have taught asset managers
Every market crisis carries its own DNA. The dot-com bust was a valuation reckoning. The 2008 global financial crisis was a liquidity and leverage catastrophe. The COVID shock of 2020 tested the speed of markets, while the 2022 rate shock reminded investors that the old rules about stock−bond diversification could break down without warning.
For investment firms and institutional investors who manage US assets, the question isn’t whether the next crisis will arrive but whether the lessons from the last several stuck.
Michael Greenberg, head of Americas, portfolio management at Franklin Templeton Investment Solutions, argues that the consistent theme across each market cycle is that the next shock probably won’t look like the last one.
“You really need to be constantly reevaluating markets, looking forward and not necessarily managing to the most recent crisis because it’s like that old adage: lightning doesn’t generally strike twice in the same place,” he says, adding that having that broader shelf of capabilities puts multi-asset portfolio builders in a stronger position to handle whatever comes next.
“It’s probably not going to be the same as the previous shock. But having these extra tools is going to be really important,” he says.
Rui Cardoso, managing director, head of global equities at Beutel Goodman, has lived through enough cycles to know that each one follows a familiar arc but never an identical script. At Beutel Goodman, the focus is less on what drives the rally and more on what survives the reversal.
“Cycles rhyme, but it’s extremely rare that they repeat. They’re all somewhat unique,” says Cardoso. ““To us, it’s not what matters on the upside of the cycle − it’s what holds up on the downside of a cycle.”
He sees the 2008−09 crisis as unusual because it wasn’t preceded by the kind of broad valuation excess that often signals trouble. Instead, leverage was the hidden fault line, particularly in financials, and that single issue was enough to upend the market, he explains.
He points to a similar lesson from 2022. While inflation and rising rates were widely blamed for the selloff, his view is that the deeper problem was that valuations had already become stretched after the momentum-driven market of 2021. The macro backdrop gave investors a reason to pull back, but the sharper lesson was that once sentiment shifts, the market can move quickly back to pricing fundamentals properly.
Cardoso acknowledges the temptation to draw parallels between today’s market and the dot-com era. While the euphoria feels familiar, he says “every cycle is a little bit different. You can’t get caught up on, ‘‘This is what happened during this cycle so it should happen now.’”
What matters more, he argues, is returning to first principles: what a business is actually worth based on fundamentals, whether the balance sheet carries undue risk, and whether the returns justify the price being paid. Investors also need humility − the future can turn out better or worse than expected, and baking in too much optimism on growth means taking on risks that may not be fully understood.
For him, the trouble starts when growth expectations get stretched, and even a small deviation, whether it’s slower revenue or thinner margins, can trigger a sharp repricing.
“You can go through long stretches where valuations don’t matter [and] balance sheets are ignored or tend not to really be a focus,” Cardoso says. “But all these factors over the long term do matter. And when they do come back into focus, the dynamics can change very quickly. When there is euphoria in the markets, that’s when emotions really kick in and that’s when the biggest mistakes can happen. So our approach is rules based, rules based, rules based.”
Meanwhile, Mathieu Sirois, partner, president, and senior portfolio manager at Van Berkom Global Asset Management, argues that while markets are often swept up by whatever theme is in favour at the time, that kind of leadership rarely lasts unless it is backed by real operating strength.
Sirois acknowledges that the great financial crisis was the defining lesson for his career because it exposed how vulnerable even strong businesses can be when they carry too much debt. For him, the firms that hold up best in severe downturns are those with durable cash flows, liquid balance sheets, limited leverage, and business models that can fund their own growth.
Companies may have high margins, solid returns, and capable management, but if the balance sheet is stretched, that strength can evaporate fast when markets seize up.
“For us, it’s been incredibly telling of the importance of remaining invested in companies that don’t have balance sheet risk − that have enough buffer financially … in terms of cash flows, in terms of leverage ratio, debt, EBITDA metrics, to absorb any kind of unforeseen shock,” he says.
While momentum can dominate for a while, he adds, the market eventually sorts the winners from the losers.
“History always seems to repeat itself, which is that the long-term determinant of stock price performance remains the company-specific fundamentals,” he says. “If the actual fundamentals of the companies propelled higher are not supported by strong fundamentals, you see these stocks coming back down oftentimes in a pretty harsh way.”
Greenberg sees 2022 as a useful reminder that inflation risk had been largely absent from investors’ thinking for years, leaving many market participants underprepared for how quickly it could return. While he doesn’t think the current market is heading into a full 1970s-style inflation regime, he cautions that inflation is likely to stay somewhat higher and more volatile than investors have grown used to.
He also argues that 2022 exposed a lesson many investors had forgotten: stock−bond correlations aren’t fixed. While bonds can still provide ballast, that relationship can break down for stretches, especially when inflation is the main shock.
Essentially, that means portfolios need to be built not just for a standard growth slowdown or recession, but also for periods of weaker growth combined with stickier inflation, he says, noting that requires exposure to three types of assets: ones that participate when growth is strong, ones that protect during a recession, and a third set that can hold up in inflationary or mildly stagflationary conditions, such as certain private assets, commodities, and select equity exposures.
But Sirois sees real danger in today’s narrow market, noting that a handful of pockets have been outperforming on sentiment and momentum rather than underlying strength, and investors piled into those areas face serious downside when the tide turns. His team’s approach is to spread exposure across high-quality subsectors − mixing domestic US names with globally exposed ones, companies that benefit from higher rates alongside those that thrive when rates fall.
“We never want to be exposed to one big macro data that could bring a lot of our portfolio stocks down just because it’s going in the wrong direction,” he says.
To that end, he believes the best managers are the ones who remain disciplined and faithful to the style, philosophy, and process that have served them over many years, rather than drifting with whatever kind of market is in favour.
Whether conditions are narrow, theme-driven, risk-on, or risk-off, he underscored success ultimately depends on “sticking” to a proven approach.
“Stick to your knitting, stick to your strength, stick to your style, to your approach, to your philosophy, and to your process, especially when the strategy has served you well as an investor for 10, 15, 20 years,” Sirois says. “The manager should never deviate from its own recipe.”
