Independent research firm van Eyk has painted a cautionary picture for investors in its latest Strategic Asset Allocation (SAA) review.
The firm believes investors are entering a period of prolonged higher risk where market volatility will return as a long-term feature, some traditional safe havens will hide unexpected dangers, and alternatives assets will remain an important diversification tool and source of higher returns.
van Eyk says the SAA Review is the product of months of intensive analysis and modelling, setting out its recommended long-term asset allocation for investors over the next three to five years.
It said van Eyk's last SAA Review in 2008 had largely predicted the major market themes of the last three years, including the outperformance of alternative assets such as emerging markets and gold.
Commenting on the latest research, van Eyk head of Research John O'Brien said a relatively high exposure to alternative assets should continue to offer superior risk-adjusted returns over the next three to five years.
He points out that volatility has been the norm over the very long term, with the relative stability of the past decade the exception.
"Investors should seek to diversify their sources of risk, and this is reflected in our portfolio construction,'' O'Brien says. "They should look for pockets of growth, without chasing the latest hot market."
Despite the volatile road ahead for equity markets, van Eyk maintains its exposure to stocks in its SAA balanced portfolio because they are relatively cheap and offer tax advantages that other investments like bonds do not.
