Why are some fund managers planning now for a recession later?

With the Dow up more than 17 percent over the last 12 months and consumer confidence growing, it may seem like the future has only good things in store for the economy. But despite a number of positive indicators, many fund managers are already planning for the next recession. And while many high net worth individuals may not yet be contemplating an economic downturn, the outlook of cautious fund managers can yield important lessons for anyone focused on wealth preservation.

For one thing, the economy is already looking pretty long in the tooth. The economy has been expanding without interruption for almost eight years now, the third longest in the history books. That fact alone should be enough to give investors pause. Meanwhile, with wage gains beginning to gather steam, the Fed is expected to begin gradually increasing interest rates, which could provide some headwinds. And growth may already be starting to slow, with first quarter GDP growth slowing to 0.7 percent – its weakest pace in three years and down from 2.1 percent in the previous quarter.

But while these signs may not exactly be encouraging, neither do they suggest that a recession is necessarily imminent. In fact, many fund managers expect the current slowdown in growth to be only a temporary blip, with as much as two years of solid growth left before the economy finally runs out of gas.

Nonetheless, numerous fund managers are already starting to stockpile cash in anticipation of the eventual downturn. While three years may seem like a long way off, many investment decisions being made today will involve investment periods of at least three years, if not longer. That is particularly true for alternative investment classes, such as real estate.

Of course, that’s not to say that investors should sit on their hands for the next three years in anticipation of the next downturn. But it is important for both investors and their managers to be aware of the current economic climate and the likely developments of the near future. Plenty of opportunities still exist for savvy investors, as long as they take heed of which way the economic winds are blowing.

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