The End of an Era: Life After Quantitative Easing (QE)

For over a decade, Quantitative Easing (QE) reshaped financial markets, distorting traditional investing principles. Now, as we transition into a post-QE world, investors are facing a landscape that looks more like the past than the recent era of central bank intervention.

At Fowler Drew, we see this shift as a return to the “old normal”—where investing fundamentals once again take centre stage. This article explores what that means for private investors, particularly those with specific financial goals.

What Changed Under QE?

1. Artificially Low Interest Rates

• QE pushed interest rates to historic lows, reducing the returns on risk-free assets.
• Investors were forced into riskier assets (equities and corporate bonds) to achieve meaningful returns.

2. Distorted Asset Prices

• Markets were propped up by liquidity injections rather than economic fundamentals.
• The traditional relationship between risk and reward was weakened.

3. Low Inflation Environment

• For much of the QE era, inflation was low and stable.
• Investors underestimated the impact of future inflation risks on long-term financial plans.

A Return to Reality: The Post-QE Investment Landscape

1. Interest Rates Are Back

• Cash and inflation-linked gilts (ILGs) are once again viable options for securing near-term spending needs.
• Investors no longer need excessive equity exposure to generate returns.

2. Markets Are Driven by Fundamentals

• Stock prices now reflect earnings potential and economic trends, rather than central bank intervention.
• Valuation discipline is returning to investment decision-making.

3. Inflation Is a Real Consideration

• Spending power protection is now a core part of wealth management.
• Investors must ensure portfolios account for long-term inflation risk.

How the Fowler Drew Model Adapts to the New Normal

Unlike many wealth managers who chase market trends, Fowler Drew’s approach has always been built for different economic environments.

1. Risk-Free Assets for Near-Term Needs

• We prioritise cash and ILGs for clients’ short-term spending plans.
• This ensures stability, even in volatile markets.

2. Equities for Long-Term Growth

• Our equity allocations are based on market fundamentals, not speculation.
• We focus on global diversification, ensuring risk-adjusted returns.

3. Dynamic Adjustments Over Time

• Our model automatically rebalances portfolios as clients approach key financial milestones.
• This provides a clear path to securing defined financial outcomes.

Why Investors Must Rethink Their Strategy

1. The Risk-Return Balance Has Shifted

• Higher interest rates mean investors can now achieve returns with less risk.
• There is no need to take unnecessary equity exposure when safer options exist.

2. Inflation Protection Is Now Essential

• QE created a false sense of security about inflation.
• Investors must now prioritise real returns, adjusting portfolios accordingly.

3. Stock Selection Must Be More Disciplined

• With markets now trading on fundamentals, investors must be selective about equity exposure.
• Fowler Drew’s goal-based approach ensures equity allocations are justified by long-term needs.

2025 Update: The Investment Climate in a Post-QE World

Since the end of QE, we’ve seen several major shifts:

• Higher yields on risk-free assets have made cash and bonds more attractive.
• Equity market corrections have led to a renewed focus on valuation-based investing.
• Regulatory changes are encouraging wealth managers to focus on sustainable, outcomes-driven strategies.

At Fowler Drew, we believe the post-QE world is a return to rational investing. By focusing on defined outcomes, structured risk management, and disciplined asset allocation, our approach is more relevant than ever.

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