The risk that matters most is the risk of permanent loss [of capital]. – Howard Marks
The many varieties of risk
“Risk” is a funny word. In the context of investing, it is used constantly; however, if you ask somebody to define what he or she really means, you are likely to be met with plenty of hesitation. “Risk” is one of those words we all use every day without giving too much thought to what it actually means.
When I think about risk, though, one definition towers over and above all the other ones. To me, when investing, “risk” is mostly, but not exclusively, about the risk of permanently losing your capital. Whichever of those silos above you think offer the best description of risk, in almost all cases, the risk of a permanent loss of capital hovers above it. In the following, I will talk about how the risk of that can be minimised.
How to measure risk
When professional investors manage risk, two measures of risk tend to dominate:
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(equity) beta; and
value at risk (VaR).
Allow me to spend a minute on how to define the two terms. Equity beta is a measure of the sensitivity of a stock (or portfolio) relative to movements in the equity market. If you assume the equity market is represented by S&P 500, an equity beta of 1 suggests the stock in question will move in line with S&P 500, whereas an equity beta suggests the stock in question is more (less) volatile than S&P 500.
The beta can be measured against other benchmarks as well – doesn’t have to be against the equity market. If, for example, you wish to measure the sensitivity to commodity prices, you calculate the commodity beta, etc, etc.
VaR is a bit more complicated. It is a measure of the maximum expected loss over a given time horizon and at a pre-defined confidence level (typically 97.5% or 99%) assuming normal market conditions . The latter is a very important assumption.
The primary problem with both of those measures is that they are akin to rear-mirror viewing. One cannot be sure that history will repeat itself, and both measures depend, to a significant degree, on historical patterns being repeated. That said, there isn’t much you can do to improve the analytical outcome. One option is to introduce a Month Carlo model when calculating the VaR, which will eliminate the dependence on history, but that won’t protect you against every possible outcome.
Every day, we calculate the equity beta on every single holding in our fund, and we calculate the portfolio VaR. In terms of the latter, we work with a self-imposed limit of 3%; i.e. we aim to keep the portfolio’s 97.5% 1-day VaR below 3%.
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How you should manage risk
Most private investors don’t have the tools, nor the time, to spend hours every day on risk management, so a more pragmatic approach is warranted. I suggest the following approach: identify a handful or two of indicators which, historically, have led to the party coming to an abrupt end. To me, the ten most important ‘end of secular bull market’ indicators are listed in Exhibit 1 below.
Exhibit 1: End of secular bull market indicators
Sources: The Felder Report, Absolute Return Partners LLP
I work with these indicators in a rather simple way. Essentially, the more boxes I can tick, the more likely, I believe, it is for the secular bull market to come to an end rather soon. Now to the serious part: All ten boxes are currently ticked off! That tells me that the end might not be that far away. Three caveats:
1. Secular bull markets rarely end ‘just’ because equities are expensive. Some sort of catalyst shall be required.
2. When going through this exercise, you may end up with a different set of indicators than me but that matters less. Choose those that you are comfortable with and that have worked for you over the years.
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3. Timing is the most difficult part of an exercise like this, and it is easy to be (too) early – in fact so early that it poses real career risk to professional investors, and that is probably why many prefer to stay on the train until it is too late to get off without an injury or two.
Re the last point, I learnt in 1990 when Tokyo Stock Exchange crashed, and again in 2000 when the same happened in New York, that most investors prefer to participate in the party to the very end, knowing very well that they may end up with plenty of (rotten) egg on their face.
Nothing has convinced me that investors have changed even the slightest. Momentum continues to drive markets forward, whatever asset class you look at, and the crowd mentality is stronger than ever. That is sort of a “if my neighbour got rich on gold, why shouldn’t I do the same?” mentality, which is very dangerous.
Allow me to finish this month’s Absolute Return Letter by sharing a chart from Goldman Sachs (GS) which shows how abundant speculative fever currently is (#5 on the list above). The chart was produced last October, i.e. it only provides 2025 data through September, but there is no reason to believe that anything happened in 4Q25 which would change the picture.
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Exhibit 2: Price return on various US equities (Note: 2025 to 30 September)
Source: Goldman Sachs Global Investment Research
Now to my point: If Nasdaq stocks with no revenues delivered the highest return to US investors in Q1-Q3 last year, and if unprofitable Nasdaq stocks came joint second, isn’t that about as strong a signal you can get that speculative fever is ample?
I could indeed provide plenty of other charts to support the issues I listed in Exhibit 1 but will only do one more – leverage is high (#8). Exhibit 3 below is testament to the fact that it is not only retail investors who get carried away from time to time. As you can see, in recent years when equity returns have been particularly strong, what have hedge funds done? Piling on ever more leverage, is the answer. This can only end in tears.
Line chart showing Hedge fund borrowings by source from 2013 to 2025.
Source: Apollo Global Management
Final few words
In the fund we manage, we are, at least to a degree, caught in the same dilemma. It is easy to see (many) equities are overvalued, but by going too conservative you risk missing out on returns. Consequently, we remain nearly fully invested but with a defensive twist. We hold large positions in low beta equities and in certain commodities which tend to do much better than equities when stocks decline. Most importantly, we hold plenty of gold.
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Rather surprisingly, our ‘defensive’ approach still led to extraordinary returns in 2025. We finished the year delivering +29.24% net to USD investors. That is obviously very pleasing; however, at the same time, I find it uncharacteristically worrying. If you deliver almost 30% to your investors, do you in fact take more risk than you think you do? Finding the answer to that question has kept us very busy in January.
This material has been prepared by Absolute Return Partners LLP (ARP). ARP is authorised and regulated by the Financial Conduct Authority in the United Kingdom. It is provided for information purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The information provided is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material have been obtained or derived from sources believed by ARP to be reliable, but ARP makes no representation as to their accuracy or completeness. ARP accepts no liability for any loss arising from the use of this material. The results referred to in this document are not a guide to the future performance of ARP. The value of investments can go down as well as up and the implementation of the approach described does not guarantee positive performance. Any reference to potential asset allocation and potential returns do not represent and should not be interpreted as projections.
Absolute Return Partners
Absolute Return Partners LLP is a London based thematic investment manager committed to megatrend investing. We aim to benefit from long term thematic trends including Climate Change, the Era of Disruption, Last Stages of the Debt Supercycle among others. You can find more information about the megatrend we invest in accordance with on our website.
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We are authorised and regulated by the Financial Conduct Authority in the UK.
Boeing expects its commercial airplane division to turn a profit in 2027, not this year as previously expected due to higher-than-expected costs of its purchase of parts supplier Spirit AeroSystems, its chief financial officer said on Tuesday, in a new setback for the U.S. planemaker.
The commercial airplane division lost $632 million in 2025 and $2.1 billion in 2024.
The company expects to increase production of its popular 737 MAX jet from roughly 42 aircraft a month to 47 a month by year’s end and to deliver about 500 of the jets this year, Chief Financial Officer Jay Malave said at the Bank of America Global Industrials Conference in London.
The single-aisle jet is critical to Boeing’s financial recovery. Planemakers receive the majority of cash from customers when they deliver new aircraft.
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Deliveries in the first quarter were slightly hampered by damage to wiring on about 25 737s, but fixing the problem only required a few more days of work and will not hurt annual deliveries, Malave said.
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Boeing shares were down 1% in early trading, continuing a 13% slide in the past month. Malave said Boeing does not plan to develop a new jetliner anytime soon.Boeing’s first-quarter 787 Dreamliner deliveries will be down slightly from a projected 20 aircraft to about 15 of the popular widebody jet, mostly due to delays certifying premium-class seat designs, he said.
“The premium seating has been challenging,” he said. “Those are very strict, rigorous types of certifications.”
The planemaker wants to increase 787 production from its current rate of eight Dreamliners per month to 10 by the end of 2026. The company is expanding its 787 assembly plant in North Charleston, South Carolina.
Options traders’ fears of a U.S. stock market crash have pulled back nearly to levels seen before the U.S.-Israeli attacks on Iran that made oil prices soar.
The Nations TailDex Index and the Cboe Skew Index, two separate gauges that measure how much traders are paying for crash protection, have retreated to near where they stood before the February 28 strikes on Iran. The S&P 500 is still down 2% from pre-war levels.
“TDEX is signaling that investors are now less worried about a “tail event,” or a really steep drop in equity prices, than at any point since the war started,” said Scott Nations, president of Nations Indexes, an independent developer of volatility and option strategy index products.
“Given the muted response from the S&P 500, this outlook makes sense, but it’s an important metric to watch,” he said.
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On Monday, the TailDex index was at 18.84, just below its closing level of 19.01 on February 27. The Cboe SKEW index finished at 141.49 on Monday, down from 146.67 prior to the air strikes.
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Both indexes soared to multi-month highs as soaring oil prices unleashed fear of a sizeable pullback in markets. The cost of deep out-of-the-money S&P 500 puts – contracts that would offer protection against a 20% drop in the market over the next three months – stands just slightly higher than it was immediately prior to the strikes, according to Susquehanna Financial Group strategist Christopher Jacobson. “After hitting multi-year highs at times last week, S&P skew levels have declined incrementally as some of that downside tail bid has faded alongside,” Jacobson said.
While fear of a market crash has faded, market anxiety levels are still higher than they were in early February. Nor are investors rushing to bet on a sharp rebound in stocks past old highs.
“We haven’t really seen that skew shift back towards the upside tail,” Jacobson said.
A landmark tribunal ruling that public electric vehicle (EV) charging should be subject to a reduced 5% VAT rate rather than the standard 20% has sparked renewed debate over fairness in the UK’s charging infrastructure, with potential implications for millions of drivers.
The decision, issued by a First-tier Tribunal, could bring public charging costs into line with those faced by motorists charging at home, addressing what many in the industry have long argued is a structural inequality in the tax system. Currently, drivers with access to off-street parking benefit from the lower VAT rate on domestic electricity, while those reliant on public charging, often urban residents, pay significantly more.
Justin Whitehouse, Managing Director at Alvarez & Marsal Tax, said the ruling reflects “a win for common sense”, highlighting a disparity that has persisted since EV adoption began to scale.
“To most people, it feels inherently unfair that those with a driveway can charge their vehicles at a reduced VAT rate, while those without off-street parking are left paying the full rate,” he said.
The case has also exposed deeper issues within the UK’s VAT framework, particularly around how electricity is classified depending on where it is consumed. The legislation hinges on the definition of “premises”, distinguishing between residential and commercial supply, a distinction that has proven increasingly difficult to apply in the context of modern EV charging networks.
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Whitehouse noted that despite sustained lobbying from the industry, HMRC had not clarified its position, making a legal challenge almost inevitable. “The legislation has always been difficult to apply in practice,” he said, pointing to ambiguity that has left operators and consumers navigating an inconsistent system.
The ruling raises the prospect of refunds for drivers and businesses that may have overpaid VAT on public charging, potentially unlocking significant sums across the sector. However, any immediate impact remains uncertain. As a First-tier Tribunal decision, the ruling does not set a binding precedent and could yet be appealed, prolonging uncertainty for both operators and consumers.
Even if upheld, a key question will be how quickly, and to what extent, any VAT reduction is passed on to drivers. While lower tax rates could reduce charging costs in theory, pricing structures across public networks are influenced by a range of factors, including energy wholesale prices, infrastructure investment and operator margins.
In the short term, the decision is likely to intensify pressure on policymakers to address inconsistencies in EV taxation, particularly as the UK accelerates its transition away from petrol and diesel vehicles. Aligning VAT rates between home and public charging has been a longstanding demand from industry groups, who argue that the current system risks penalising those without access to private driveways — often those in cities where EV adoption is critical to meeting emissions targets.
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Over the longer term, the case could act as a catalyst for broader reform of how energy usage is taxed in a decarbonising economy, where traditional distinctions between domestic and commercial consumption are becoming increasingly blurred.
For now, the ruling represents a significant moment in the evolution of the UK’s EV ecosystem, one that highlights both the opportunities and the complexities involved in building a fair, scalable and accessible charging infrastructure for the future.
Amy Ingham
Amy is a newly qualified journalist specialising in business journalism at Business Matters with responsibility for news content for what is now the UK’s largest print and online source of current business news.
Analysts anticipate a higher supply of debt being raised by the Big Five hyperscaler companies this year as they race to build out their data center infrastructure, following Amazon’s near-record bond sale last week of roughly $54 billion in investment-grade bonds.
Hyperscalers, which operate vast data centers and other infrastructure to facilitate AI training and deployment, have been raising debt to finance data centers needed to fuel the boom in AI.
“There continues to be an expectation of a lot of capital to be raised in this sector,” said John Servidea, co-head of investment-grade debt capital markets at JPMorgan, which led the Amazon deal.
“Whether it’s the companies’ publicly stated capex budgets, or whether it’s various banks’ estimates of the amount of hyperscaler issuance, if you look at all of those, a realistic expectation would be that at some point there’s more,” Servidea added.
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Analysts at BofA Global Research on Friday raised their forecast for the hyperscalers’ new debt in 2026 to $175 billion from $140 billion. In early February, Barclays analysts said that U.S. investment-grade corporate bond issuance could be greater than $2 trillion in 2026, which they said “would exceed even the post‑COVID record levels seen in 2020.”
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The five major AI hyperscalers – Amazon, Alphabet’s Google, Meta, Microsoft and Oracle – issued $121 billion in U.S. corporate bonds last year, versus an average $28 billion per year between 2020 and 2024, according to a January report by BofA Securities. Microsoft and Oracle declined to comment, while the other companies did not immediately respond to requests for comment. Hyperscalers made up four of the five biggest U.S. high-grade bond deals in 2025, according to a December report by MUFG analysts. Most of those took place in the second half of the year. Oracle sold $18 billion in bonds in September. This was followed in October by Meta’s $30 billion deal and November deals from Alphabet ($17.5 billion) and Amazon ($15 billion).
This year saw a $31.51 billion global bond raise by Alphabet in February, which included a rare 100-year “century” bond as part of the deal.
Most recently, Amazon raised about $37 billion across 11 tranches in the U.S. bond market on March 10. This was followed the next day by a 14.5 billion euro-denominated ($16.8 billion) bond raise by the company.
The overwhelming demand – nearly four times the total amount sold – for Amazon’s bond sale underlines investor appetite for debt from the major hyperscalers.
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Market participants believe the actual and expected debt raise by hyperscalers will keep forecasts for potential record-breaking overall U.S. corporate debt issuance on track, despite quiet days in the primary market preceding and following the escalation of conflict on February 28 between Iran and U.S.-Israeli forces.
“It’s fertile ground right now in capital markets, and you’re also in the first half of the year,” said George Catrambone, head of fixed income, Americas, at asset manager DWS.
C. Stephen Tusa – JPMorgan Chase & Co, Research Division
Presentation
C. Stephen Tusa JPMorgan Chase & Co, Research Division
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All right. We’re moving along with Mark Okerstrom from CFO of Fortive. Thank you so much for joining us here in lovely Washington, D.C.
Mark Okerstrom Senior VP & CFO
Yes, thanks. Great to be here.
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Question-and-Answer Session
C. Stephen Tusa JPMorgan Chase & Co, Research Division
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Yes. Just wanted to start off with a basic kind of background on what’s happening out in the world today, I kind of have to ask the question about exposures and anything that’s going on in the world that is a concern or impact for Fortive. Middle East wise?
Mark Okerstrom Senior VP & CFO
Yes. Listen, I’d say we’re on track on the Fortive accelerated strategy, on track in terms of our strategic initiatives. The Middle East for us is a small portion of our revenue. It’s low single digits percentage of our revenue. We are seeing strong demand for products into the Middle East.
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So Fluke Industrial Scientific that does gas sensors, again, seen strong demand, some challenges getting shipments into the Middle East. But again, generally, it’s a pretty small portion, and it’s — for better, for worse, it seems like it’s an opportunity as opposed to a risk for us.
C. Stephen Tusa JPMorgan Chase & Co, Research Division
And how are you guys putting the Middle East and what’s happening over there aside. How are things kind of trending over the course of the quarter, kind of quarter-to-date, point-of-sale trends, software sales, anything like that?
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