An uncertain and unpredictable macro-economic environment, with unprecedentedly low interest rates, will continue to create challenges for investors, according to Australian Unity Investments’ joint venture asset managers.
Overall, the asset managers agreed that investors need to lower their expectations of returns for the foreseeable future.
Prasad Patkar, head of qualitative investment at Platypus Asset Management, said the low growth environment is set to persist for some time and investors should be prepared for low interest rates and limited earnings growth for the medium term.
"We believe that further reform and fiscal support from governments is unlikely, and there will be greater reliance on central banks to sustain economies. The only exception here is possibly Japan.
"While the US remains relatively resilient, we would continue to avoid UK and European exposure, and we also believe that Chinese growth momentum has peaked post stimulus.
"All these factors mean that a bottom-up focus, and finding structural growth stocks, will be vital for investment outperformance," Mr Patkar said.
Chad Padowitz, chief investment officer at Wingate Asset Management, agreed that stock selection will be key for investors.
"The current high asset prices are a function of strong historic returns, but we expect returns to decline from here, with weak future returns from current valuations.
"The challenge for investors is how to find opportunities that will continue to deliver.
"In our view, we are seeing the largest bifurcation in decades within equity markets. This provides a once-in-a-generation opportunity for investors – as well as a once-in-a-generation risk.
"In aggregate, there are significant outflows in equities, yet the market is at an all-time high.
"It seems that expensive sectors are being funded by selling cheap sectors, so investors that do their research and identify the right stocks, can currently buy good companies at very low prices," Mr Padowitz said.
Bill Bovingdon, chief investment officer at Altius Asset Management, said that lower returns are a global phenomenon and a result of excess global savings which are driving yields lower on all assets.
"There has been substantial crowding out of private investors through reserve accumulation and asset purchase programs.
"While recent trends in monetary policy have been good for some, it hasn’t worked for a large part of the population.
"Measures of US incomes show that there is a growing gap between the "haves" and the "have nots". The middle class is being left behind, a phenomenon apparent in many developed economies. The most obvious outcome of this is job insecurity, a muted response in consumption and the growth of populism, which we have seen in Britain and the US most recently.
"While some of the signs are good – for instance, unemployment has been this low only four times in the last 50 years – there are headwinds that are preventing a positive impact being felt.
"The Reserve Bank of Australia has now significantly lowered inflation forecasts and subsequently cash rates in the hope of boosting private business investment and supporting economic growth, but this continues to drive investors to search for yield outside the traditional income options," Mr Bovingdon said.
Mark Pratt, general manager – Australian Unity Real Estate Investments, agreed the hunt for yield is set to continue for the foreseeable future.
"We continue to see high levels of offshore investment in Australian property, including in the industrial, retail and commercial sectors.
"As one of the few countries with positive interest rates, we expect this "flight to safety" trend to continue, even with the forecast that the RBA will cut rates further this year.
"Both yield and distribution returns for property have remained strong for the last decade, and the healthcare property sector in particular has seen significant uplifts in capital growth.
"We believe that there is still room for cap rates to compress and as such, property will remain an attractive asset class for investors," Mr Pratt said.