In the current climate investors should have disciplined focus and an ability to suffer, the head of global equity income at Redwheel has said.
Nick Clay who runs the £89mn TM Global Equity Income Fund, has said the level of indebtedness now accumulated by governments, corporates and individuals over the last 15 years means the ability to cope with high interest rates is almost non-existent.
This could lead to the Fed pivoting too early in 2023, which could cause greater problems than a deep recession, he said.
“For the longer inflation remains untamed, the more it seeps into expectation; of company’s and price increases and of labour and their wage demands.
“The 1970’s taught us that relenting too soon simply brings inflation back in waves, and this recurrence of inflation usually causes volatility in asset classes and destruction of real wealth over time."
However, if the “correct medicine” is administered, there are fears than 2023 could turn into a “deflationary bust”.
“Everything points to a much-changed investment backdrop, whichever way the future falls, which requires a different investment approach.
“The greatest challenge this poses is that the previous investment backdrop lasted so long, that many investors believe it to be the norm.”
Questions still abound over when monetary policy and the market backdrop will return to the easy money, upward only, “get rich quick” environment that has been recently enjoyed, he said.
But what many forget is that the last 15 years have been the abnormal, not the normal, investment backdrop.
“Discipline in process and an ability to suffer is now appropriate, both in terms of investment process and investment culture.
“A continuous and growing dividend, delivered by actively investing in those companies that can suffer volatility in their businesses, could allow investors to weather volatile markets and inflation.
“Wealth can still grow in a more difficult environment, but investors must learn to return to the normal way of delivering that growth.”