Pendal’s multi-asset team have removed the risk of a low-return world from its long-term secular investment themes.
The firm felt the threat of low returns related to zero interest rates was now a trend that was “in the past” as central banks reverted to normal levels of monetary policy.
The six themes were now:
- The ongoing importance of environmental, social and governance (ESG) themes from a risk and opportunity perspective;
- Better productivity;
- Ageing demographics;
- High debt and deleveraging;
- Enhanced geopolitical risk; and
- Higher inflation and spike risk.
Alan Polley, portfolio manager in the multi-asset team, said: “For the past decade, everyone’s been talking about expected investment returns being low. The main reason was because central banks had pushed down real rates to negative and market valuations to stretched levels.
“But that’s normalised. Cash and real rates are at reasonable levels. And now that markets have sold off as well, forward-looking returns are looking pretty good, probably the best they have for a decade.”
In terms of how the team were changing portfolios, it was increasing exposure to bonds, moving some capital into sustainable listed investment companies and reducing exposure to emerging markets.
“[Bonds] are offering attractive yields and have material diversification benefits again. This will also help to defend against a potentially more volatile long-term outlook with more geopolitical risk and less supportive central banks.
“With the secular theme of higher inflation, you want more real assets. The way we’re looking to get that real asset exposure is via renewable and sustainable companies with underlying real assets.”
