‘Risk-free returns a historic concept’: Fidelity
Investors need to be prepared to take more risk with their investments in order to generate returns as the idea of ‘risk-free returns’ has become an historic concept, according to Fidelity.
As investors were hit by a market downturn in equities and a historic low interest rate of 0.25% in fixed income, Fidelity’s cross-asset specialist Anthony Doyle said they would have no choice but to move up the risk spectrum.
This included more focus on active management which could take a more sector/company-specific approach rather than track an index.
“Cash, government bond and high-quality investment grade corporate bond returns are unlikely to compensate long-term investors for the rising cost of inflation. We now face an environment where the concept of risk-free return is an historic concept,” he said.
“Australian investors will be required to take more risk to achieve their investment goals, meaning higher-yielding asset classes like Australian and global equities are likely to see growing inflows in the years to come.
“We expect that in the current investing environment active management will become increasingly important to investors. Growth outcomes are likely to be volatile, meaning there will be clear winners and losers at a country, sector and company level. The ability to generate alpha by identifying the long-term winners and avoiding those companies that face a more challenging outlook will be key.”
Doyle was particularly keen on investing and investing in Asia which he said was benefitting from rising wealth and consumption. China, in particular, had been pivoting from a manufacturing-led economy to one driven by services and consumption and was benefitting from a rising middle class who were consuming and travelling more.
“Asia is one of the fastest-growing regions in the world, there is rising wealth and rising consumption and it has a lower level of leverage,” Doyle said.
According to FE Analytics, within the Australian Core Strategies universe, the Asia-Pacific ex Japan sector returned 4.1% over one year to 30 June, 2020 versus losses of 5.8% by the Australian equity sector.
AUTHOR
Laura Dew
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.
