Investors should get ready for a more volatile year ahead after they have seen a relatively benign 2019 with excellent returns across the traditional asset classes, Schroders’ head of fixed income and multi-asset, Simon Doyle, said.
Looking forward, a key takeaway from the past year for investors should be that in the absence of recession, liquidity would trump growth and if interest rates remained low, markets would be supported.
“This year will be much more challenging than the past year and I think it’s a general rule that the next few years will be more challenging,” Doyle said.
According to Schroders’ head of distribution, Graeme Mather, 2019 was dominated by a number of changes happening across the superannuation industry, with a number of regulatory changes happening and a rapid increase in mergers and acquisition, a trend which was expected to be continued throughout 2020.
On the other hand, the lesson from 2019 showed that investors – including financial advisers – were more interested in looking outside the traditional asset classes.
“Some traditional assets are starting to look really priced and one of the things that we have seen from our clients and not just the superannuation funds but financial advisers as well is that they are looking at the broader investment opportunities options not just equities and bonds,” Mather said.
Among the asset classes which seemed to see a growing interest from investors over the last few months were emerging markets debt, securitized debt, private assets (private equity) as well as private debt and China’s equities.
In terms of equity markets, Doyle indicated that Australia, Japan and selected emerging markets looked the most attractive, with Australia being one of the most preferred markets at the moment.
At the same time, he warned that investors should remain cautious as valuations were still problematic due to major geopolitical risks, such as the US-China trade war and the uncertainty of Brexit, which helped improve on the margin but markets were awash with central bank liquidity, which provided an opportunity to add back to risk.