The world is becoming pedestrian, it seems, and in such an environment super funds need to consider their strategies. Do they want to walk with the masses or run their own race? Bear in mind, in investment terms, running your own race is not often a great idea. Pedestrian, as dull as it sounds, has usually been best over about the past 30 years. But, according to Martin Currie Investment Management, the next five to 10 years will be charactered by restrained average returns, but perhaps with even more volatility. The western world will continue to unwind its debt over several years. Instead of leverage adding about half a per cent to annual GDP, de-leveraging will subtract about half a per cent.

Neil Robson, Martin Currie director and portfolio manager, global portfolios, says that profits over the next couple of quarters will be close to potential as a percentage of GDP. After that there will be average growth only. So, what types of companies are likely to win in such a scenario? Given that the marginal capacity of most industries will probably not be required, stronger companies which are closer to full capacity are likely to be the secular winners. For investors, value-biased managers will tend to struggle compared with their growth counterparts. “Pockets of the economy will continue to grow, and emerging markets, but it will be a more selective growth environment,” Robson says. “There will be niches that develop pricing power and they will do well but mostly it will be the strong market leaders.”

It may, in fact, be reminiscent of the environment which coined the phrase “the nifty fifty”, when about 50 large-cap stocks on Wall Street tended to outperform the rest of the market for an extended period in the 1960s and into the 1970s. They were regarded as a buy-and-hold position because of the strength of their balance sheets and market leadership. James Fairweather, chief investment officer and head of global equities, says we have moved from a period when the biggest risk for an investor was what he did not own.

Now, with returns of, say, 6-7 per cent, the biggest risk is what the investor owns. “This takes you towards an alpha strategy,” he says. “You want to move away from the indices as volatility gets higher… It’s a pedestrian market environment.” Some in Australia are concerned about inflation, but in most of the western world, deflation is the main concern. With the stimulus packages starting to fade, it is apparent that there has not been a broad-based lift in the money multiplier. Credit is not getting into the underlying economy but is mostly boosting the balance sheets of the big financial institutions.

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