Economy stable but not secure
Investors should avoid assets that rely on central bank valuations and hedge against inflation, as the global economy appeared stable, but was not secure, according to PIMCO.
The fund manager's global strategic adviser, Dr Rich Clarida, said as the global economy entered its eight year of recovery, the ho hum growth and low inflation environment would continue for the next several years.
He said investors should not be deceived by the false sense of security and stability, as there was a real risk ahead.
"The system has only averted collapse via (one) zero or even negative policy rates, (two) liquidity via quantitative easing (QE) and (three) via the debt financed investment boom in China," Clarida warned.
"There is a real risk of monetary policy exhaustion in coming years, and that investors needed to be alert to the heightened uncertainty they face under these circumstances, and to be compensated for taking on these risk," he said.
Over the next three to five years, investors should focus on capital preservation (as debt write downs would continue), protection against inflation, finding attractive valuations in global opportunities and using bottom up security selection, instead of hugging an index, Clarida said.
"In the absence of structural reforms, we were approaching the limits of central bank policy," he said.
Inflation was rising and political uncertainty was increasing, coupled with greater market regulation, he added.
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
