A $163 billion chief economist outlines his biggest market fear

Larry Hatheway is the chief economist and head of investment solutions at GAM. In this interview with Business Insider's Sara Silverstein, Hatheway explains his biggest market fear. Following is a transcript of the video.

Sara Silverstein: And that's exactly what you do. So what opportunities are you seeing in alternatives, in long-short pairing. Where are you finding good offsetting positions?

Larry Hatheway: Alright, so to be sure, in the period of recent market turbulence in January and February, a lot of those strategies didn't quite deliver on that promise. There are some that do, and there will always be a few that do, but that means that it has to be a lot of skill and manager selection. And certainly, we spend an awful lot of time and a lot of our portfolios reviewing managers, reviewing their approaches, and trying to select amongst those that we think are gonna be best positioned to carry out that task that I have just outlined. In our own particular strategies, we do think it's non-directional. That is, we are taking positions that try to remove the direction of equity markets, and for the most part, the direction of bond markets from returns. What we're seeing is, is that the dispersion, or the difference in performance amongst stocks in the same industry group, in the same sector, sometimes in the same style, is beginning to diverge. That's a good thing. That gives us opportunities to try to pick those winners, and offset it by some of the weaker performers to generate these sort of uncorrelated strategies. It's an ongoing effort, there is no magic bullet, but it does seem to me it's an appropriate way to take some of your portfolio and re-allocate it.

Silverstein: And when you're looking at stocks overall, what are you most worried about? Is it impending trade war? Is it inflation? Is it valuation levels?

Hatheway: So at the moment, I think it sort of is the change in policy sentiment. Last year was an unambiguously good policy environment for stocks. We had tax reforms, tax cuts in the United States. We had fairly sweeping measures of deregulation that were announced, in many cases implemented, through executive order. Those were very business-friendly policies. But in 2018, politics in the United States is becoming more partisan. Unsurprisingly, we have midterm elections in the fall. That partisanship means that there's no real possibility of legislative action to continue that positive agenda. But it also means that there is going to be more of an appeal to what got this president elected, which is populism. And populism is about anger in some parts of the world, in some parts of the United States, I should say, about what's going on in terms of economic livelihood. And populism is almost always an anti-business message, and we're seeing that in the discussions around Amazon coming out of The White House. We're seeing it in the trade measures that have been implemented this year, and that is unsettling markets. So I would say, in the near term, over the next few months, it is probably about this shift in policy from being business-friendly to being business-unfriendly that is of greatest concern to market participants.