All five of the major consultancy firms have a gloomy outlook on investment growth, but while several see hope in dynamic asset allocation, Jana Investment Advisers has urged investors to readjust their expectations.
Representatives from each firm were quizzed by Sean Henaghan, investment director of AMP Capital at the Investment Management Consultants Association’s annual conference in Sydney.
In answer to a question on where he saw near-term growth coming from in a world where equity valuations were high and bonds yielding little, Ian Patrick, chief executive of Jana Investment Advisers, emphasised managing downside risks instead.
He likened the situation to that of a monkey that gets its hand stuck in a jar because it cannot let go of what it has found.
“The risk with returns that meet an objective is that people get too clever. The age old rules apply about diversification and remembering that an asset that does not offer protection is fraught. You have to accept that there will be periods of disappointment and if we are not messaging that to our clients, we are doing the wrong thing.”
Robb Hogg, senior consultant at Frontier Advisors, said his firm had been telling clients that they were in for a very low long term growth world with very steady official cash rates. “The outlook is much more uncertain than it has been for a very long time”.
This message was in contrast to Graeme Mather, business group leader at Mercer Investment Consulting and Tim Cook, senior consultant at Russell Investments who emphasised the opportunities from greater portfolio efficiency and dynamic asset allocation.
Mather was the most upbeat.
“There are operational efficiencies that can eke out extra returns. The return targets are still achievable, you just to have to maybe look at other ways to achieve them that are not traditional.”
Mather pointed out that it was a “ripe” market for active managers currently and listed emerging market investments, absolute return bond investing and multi-asset credit, as sources of real return. He also emphasised dynamic asset allocation as a source of risk management in avoiding expensive asset classes.
Cook said investors had a chance to put in a whole number of processes around the portfolio to give incremental added value. He listed volatility strategies, smart beta, illiquidity premiums, after tax investing, intelligent transition management and focusing on where active management creates real value.
The panel was largely in agreement that the best value currently was to be gained in emerging markets.
Hogg also saw value in bank loans, which he said were still reasonably priced, if not the bargain they were four years ago.
He asked: “Has the extent of forward anticipated return been delivered to the same extent out of loans as has it out of investment grade? Relative to other option there is still something in loans going forward.”
The panel also debated the future role of consultants in a world where superannuation funds were increasingly adding internal expertise.
Mather said his teams would increasingly offer specialist investment advice, while Tim Unger, senior investment consultant for Towers Watson, foresaw a situation where, boards of super funds hired a consultant to offer tailored advice for their decision making, that was separate to the consultancy advice paid for by the executive investment team.
