In a presentation at this week’s Australian Superannuation Investment Conference, Tim Gardner, head of institutional client strategy at AXA IM, said investors are consequently taking greater risks in higher volatility and low equity investments to achieve target returns.
Mr Gardener said although a great deal of capital was moving back to developed economies such as the United States in anticipation of a recovery, the long-term direction of emerging markets remains positive.
“While emerging markets returns are likely to be volatile, the long-term positive direction of the emerging markets story is still the prevailing view,” he said.
Japan’s surprising growth in equity was another key topic of discussion at the conference. This growth has been the result of growth policy referred to as ‘Abenomics’, which has increased the market by 55 per cent over the past 12 months.
“The revelation for investors this year has been Japan, a country which was so often ignored by institutional investors over the last 20 years. Fund managers and investors are having to rethink the strategic weighting of Japan, which in many global portfolios had fallen to close to zero despite the size of the underlying economy,” said Mr Gardener.
There are concerns, however, that easy monetary policy such as this could have negative flow-on effects such as inflation.
“Most investors believe that quantitative easing has built inflation into the system. The problem is that since so many investors fear the same outcome - in this case, inflation - the underlying assets which are considered to be long-term inflation hedges are becoming expensive as demand outstrips supply,” Mr Gardener said.
AXA IM’s SmartBeta strategy could help investors exploit long-term premium, according to Craig Hurt, AXA IM director of Australia and New Zealand.
“Since AXA IM announced its global SmartBeta equity strategy in Australia six months ago, significant interest has been shown by local investors looking for cheap diversified global equity exposures which provide a more sophisticated and efficient way of capturing equity market beta than traditional approaches,” Mr Hurt said.
Mr Gardner added that despite current market conditions, investors are adapting by scrutinising traditional strategies to determine if they are viable long term.
