Age of austerity ahead for investors, advisers say

Wealth managers are predicting an upcoming year of investment austerity as yields remain low, growth is stagnant and assets are highly correlated to each other.

Guy Huntrods, advisory desk head at RBC Wealth Management, said investors have entered a ‘new normal’ that will require realistic expectations and long-term strategies. “We’re viewing it as investment austerity,” he said. “Clearly the return potential for investors is less.”

Huntrods said the low-growth environment is often pushing investors into inactivity by holding large amounts of cash or into unsuitable investments in assets that might be too risky for them.

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Meanwhile, George King, head of portfolio strategy at RBC Wealth Management, said economic austerity is one of the major drivers of investment austerity, resulting in portfolios being less diversified and holding large amounts of cash.

But King said investment growth is available in the market even when the economy is sluggish. He picked out Europe as one potential source of growth for its healthcare and industrial sectors. “It’s not about being exposed to Europe, it’s about being exposed to a high-class European company,” he said.

King also said emerging markets remain an opportunity, particularly in light of the fact the IMF predicts 2013 will be the first year the gross domestic product of these economies will exceed that of the advanced economies.

But James Thomson, manager of the Rathbone Global Opportunities fund, said he believes outlook is for low rates of growth, but it will also be a bumpy ride. “Over the next few years we’re going to experience something I call rapid cycling,” he said.

Mr Thomson added that while the trend rate of growth is close to stall speed, there will no longer be long periods boom and bust, instead, any growth that does happen will fall quickly and suddenly.