‘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.
Recommended for you
In the latest Meet the Manager profile, Money Management speaks with Michael Skinner, founder and managing director at Blackwattle Investment Partners.
Perpetual has seen AUM rise 6 per cent in the last quarter but the departure of a longstanding JOHCM fund manager led to outflows of $2.2 billion from his strategy.
Global fixed income fund Bentham Global Opportunities has been added to several major platforms, enabling it to be accessed more easily by financial advisers.
Following yesterday’s news about First Sentier Investors closing four investment teams, a second global asset manager has announced it is closing its only dedicated Australian fund.