“There are many stocks and sectors today that are trading at a considerable discount to their net tangible assets. This environment has not existed materially for decades. It may be that it will take time for such value to be rewarded in share price action, but that is the nature of owning companies,” says Marshman. There’s another factor which may impact on returns from equities in the future, which is more emotional than technical. That is the increasing disquiet around the world over executive remuneration. Peter Ryan-Kane, an asset consultant in Towers Watson’s Singapore office, gave a series of presentations in Australia in 2009 in which he took a 20-year view of asset allocation strategies for super funds. A key prediction was that listed equities would be a significantly lower proportion of total fund assets in the future. One of the questions he raised was: will investors continue to be happy to be taking the last piece of a business’s earnings, that is, dividends? After lenders?

After management? After investment bankers and other advisers had all taken their cut? In the future, he pondered, there would be a much closer alignment between a super fund’s investment strategies and the actual lives of the members. Members live in the real world whereas most funds invest primarily in financial assets. Financial assets – the prime category being listed shares – make up something like 10 per cent of total world assets. If members are annoyed because the management of those listed shares are paying themselves far too much money, then surely they will withdraw their investments. They will be more likely to invest in ‘real assets’ or to want to have much greater control over the investee business, like private equity managers try to do, or Warren Buffett.

Derek Mock, an Australian equities specialist at Mercer Investment Consulting, warns that equity strategies should not be chosen with the financial crisis at the front of mind. “Don’t design a portfolio through the rear-vision mirror. You might have hurt a lot, but look forward, and ask: ‘What are we exposed to? What are our risks? Is the portfolio, in aggregate, too aggressive or defensive?’” After determining clear investment objectives, investors should then consider portfolio construction by taking style, size and risk budgets into account. Managers meeting these criteria should then be chosen and blended accordingly. Clients should then get closer to their managers to gain some insight into how their behaviour changes during different market conditions, such as periods of market stress – are they contrarian, or do they seek the safety of largecaps? Gaining a clear understanding of investment goals is the most important part of any strategy, says Towers Watson’s Dougherty. “The only people that would have changed their views dramatically over the past few years were those that had the wrong structure. If you had a fundamentally sound and wellreasoned investment strategy it would have been tested, but it wouldn’t have changed.”