The ageing populations of many of the world’s developed economies, the long-term impact of technology and automation, and the sky-high levels of consumer and government debt could all impact negatively on investors’ returns. And while global growth may have picked up recently, it remains pedestrian compared with that seen before the financial crisis.
While global growth may have been slow, the performance of financial assets has been anything but, with plummeting yields resulting in huge gains for bond investors and share prices surging in spite of the fact that corporate earnings have not been particularly outstanding.
However, it is our view that the ultra-low interest rates and quantitative easing implemented by central banks have resulted in huge price inflation, and therefore investors have ‘borrowed’ returns from the future.
That said, with the possible exception of the US, interest rates are likely to remain at rock bottom levels, and therefore investors will still have to consider alternatives to cash in order to have a chance of achieving a decent return.
Traditional longer-dated bonds are not the answer due to the lack of yield support making these (previously safe) assets much more volatile than they have been in the past.
While we are not joining the throngs out there who have declared the 30-year bull market in bonds to be over – how many times have we heard that in the past few years? – we would suggest that the returns on offer, or rather lack thereof, are not worth the risk.
With the exception of the US stockmarket, equities would appear to be better, albeit not particularly good value. Also, with returns in 2016 exceeding expectations, corporate earnings certainly have a bit of catching up to do.
Perhaps one of the most bullish indicators for global equities is that this eight-year bull market remains the most distrusted in history, which suggests that perhaps it has a way to go yet before ending.
Ironically, given their surge in popularity, it is the Premier multi-asset team’s view that it is those investors relying on passive investments linked to the world’s major equity and bond markets who are likely to suffer disappointing returns over the next few years.
While there probably won’t be a scandal surrounding this, there may well be serious consideration given as to whether there may have been slightly too much emphasis on the cost of an investment, rather than its value.
The multi-asset team has now drawn a line under 2016, and while 2017 has got off to a reasonable start, many challenges will lie ahead.
As always our priority will be to ensure that all our mandates remain diversified and continue to deliver what is expected of them in the prevailing market conditions.
David Hambidge is director of multi-asset funds at Premier
