Equities beat the odds

Mark Dutton

Equities are currently offering some of the best returns they ever have and at a time when volatility is trending down, according to AXAAustralia chief investment officer Mark Dutton.

Research undertaken by the fund manager revealed that the equity market was the only asset class to have not yet adjusted returns in accordance with today’s less-volatile investment environment.

“Long-term risk on equity markets is declining, but the risk premiums that investors earn haven’t declined at all — these markets have actually got cheaper,” Dutton explained.

Unlike debt and property markets for example, which have increased asset prices as a means of compensating for less risk, Dutton said equity markets still provided investors with large risk-based returns.

He added that investors should not be deceived by short-term volatility, which might give an impression of volatility increasing, when the long-term picture is that it is actually decreasing.

“In the short-term we will always get spikes and shocks to the system, but I think even in hindsight, looking at the type of volatility we got with the sub-prime shock or the Chinese market shock earlier in the year, they were nothing like the kinds of events in terms of magnitude that we would have seen if those events occurred in more volatile times,” Dutton said.

“Volatility is actually lower now than it has been in previous decades.”