Most people give up on their resolutions by mid-February. As we usher in the second quarter – a reminder that it’s never too late for investment goals.
The year is firmly underway and investors are searching high and low for new opportunities to grow their financial portfolios. Being abreast of these of investment trends gives some insight into how they are most likely to move.
Sonja Saunderson, Chief Investment Officer at Momentum Investments, speaks to us about seven cyclical trends and longer structural investment trends they see dominating 2019 and what they mean for investors.
Cyclical trends:
1.Better valuation in growth-orientated asset classes
Valuations are more attractive in equity and property assets in emerging and developed markets – with the United States (US) being the laggard. This is largely due to market corrections in 2018.
2. Moderating global growth
This trend has been in the headlines with 2019s growth forecasts being revised down. There is potential for a recession in the US in 2020, although there is some debate as to whether this would only be a further slowdown.
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3.Geopolitical factors
One of the biggest ticket items this year is the US-China trade war and its direction – whether it will escalate or moderate. Regional trade integration is coming to the fore more prominently.
In South Africa, Eskom and the elections are two big geopolitical issues this year. General elections take place on May 8 and the results are eagerly anticipated, as is the action thereafter.
Eskom, South Africa’s power utility that is struggling with a debt of $30 billion and power supply problems, poses a systemic risk and could affect economic growth and the country’s sovereign credit rating.
Investor take out: We are expecting a year of volatility, which gives active investment managers opportunities and strengthens the case for investing in alternative asset classes such as private equity.
Longer structural trends:
1.Lower returns
A lower return from asset classes is expected, in part due to the significant overhang of debt. Extreme volatility will mask this at times, but we expect lower returns in the medium to longer term.
2.Hunt for returns
The expectation of lower returns means the hunt for yields is on. This will lead to continuing innovation in listed and unlisted markets such as smart-beta investing, and the growth of alternative asset classes where higher returns can still be found. Although, these investments are more complex and restrictive.
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3.Pressure on fees
The pressure on asset management models will continue with the focus on lower fees. Surviving models will either be a scale approach where the volume of assets can pay for the costs of asset management, or the boutique model where smaller teams can justify higher costs on a smaller asset base.
4.Outcome-based investing
The long-term investment trend is not just about delivering a return against a benchmark, it is meeting clients’ needs and goals. This is the focus of outcome-based investing which simplifies the investment process by helping investors remain focused on what matters – staying invested.
Investor take out: Having a trusted adviser will be key to ensuring investors can develop sensible financial plans. Regular engagement with advisers will help navigate the bumps in the road and stay the course, which has proven to be the best investment strategy. Along with this, investors need to have a diversified investment portfolio.
– As told to Melitta Ngalonkulu