Long term returns a 10 year view
21 January 2013
Standard Life Investments, the global investment manager, offers a 10 year return estimate for a range of asset classes in the major global economies, based on a combination of several important key assumptions. At year end it is common place for investors to look forward over the coming 12 months but experience shows that such estimates can often be no better than a leap in the dark as unexpected short term shocks can throw markets away from fundamentals.
In the latest edition of Global Outlook, the leading investment house highlights the benefits to investors in making longer term return estimates based on thorough research and a repeatable investment process. These include the potential ability to profit from periods of short term mis-pricing as well as the confidence to pursue illiquid investment opportunities which could yield above average returns in the long term. Standard Life Investments believes that the discipline of making a long term estimate forces investors to decide on credible key assumptions and assess the sensitivity of the final numbers, helping them to align risk to long-term investment return objectives.
Keith Skeoch, Chief Executive, Standard Life Investments said:
"2012 saw stock-picking rewarded as investors started to look through the big picture, as can be demonstrated by the performance of many of our equity funds. Robust equity returns at a time when macro concerns remain high may be a sign that the nature of returns are changing, back to a focus on the fundamentals, the importance of research and a robust and repeatable investment process.
"The long-run signals do suggest that the return environment shaped by the post crisis world is starting to change. I firmly believe that it was never a question of simply ‘risk on, risk off’, but more ‘where is risk likely to be rewarded?’ History and common sense suggest that looking forward this is unlikely to be the safe-haven assets, where prices are still close to 100-year highs.
"It will take time for the new return environment to emerge. However, there is an increasing probability that it will do so in 2013, with truly sustainable business models and income important elements driving returns."
Based on Standard Life Investments’ robust Focus on Change investment process, the global asset manager believes portfolios over the next 10 years should be orientated more towards the riskier end of the spectrum, namely equities and real estate, and less towards government bonds.