While inflation, interest rates, the war in Ukraine and recession anxieties have driven some short-term turbulence in markets, Zenith Investment Partners has pointed to the strength of returns over the medium term as a reminder of the need to take a longer-term perspective.
In a recent note, Zenith highlighted the annualised performance of traditional asset classes over five years, with Australian shares delivering a return of 6.82 per cent and international shares (in AUD) returning 10.12 per cent unhedged or 7.33 per cent hedged.
Zenith investment consultant, Calvin Richardson, said that these returns reinforced the longer-term perspective required when investing.
“Despite pockets of weakness emerging in the global economy, we believe ample positive catalysts remain, including low unemployment, strength in the corporate sector and cashed-up consumers,” he said.
“For all the negative sentiment in the media, remember, that once it’s in the headlines, it’s in the price. And that recoveries from market corrections generally begin when the outlook is particularly dour. This means that with excessively bearish positioning and pessimism thoroughly priced-in, this sets the stage for a potential upside surprise.”
Mr Richardson suggested that there was a “silver lining” to the recent market turbulence in a way that investors now have a higher probability of meeting their return objectives, particularly those with lower risk-profiles after the dramatic repricing in fixed income markets.
Zenith has updated its 10-year return forecasts with an expected return of 5.7 per cent for investors in a balanced portfolio compared to 4.4 per cent at the start of the year.
“The wash-out in markets, whilst painful, has led to a lot of the normalisation expected to unfold over a longer period. The ensuing multiple compression leaves valuations for traditional asset classes looking a lot healthier versus the start of the year,” Mr Richardson said.
The firm committed to remaining “highly active and discerning” in its investment decisions throughout the remainder of the year as policy settings continue to transition from accommodative to more neutral levels.
Mr Richardson acknowledged that the environment hasn’t suited Zenith’s small cap bias, but added that the firm believes investors will be more than compensated for the tilt in the longer term.
“With longer-term investment returns now looking relatively attractive, we remind investors that generally, the best and worst days in the market are clustered together, and that panic selling is typically a wealth-destroying endeavour,” he concluded.
“Lastly, we understand the temptation to base your investment decisions on the tunnel vision created by the recent pullback; however, we instead advocate for a more measured and forward-looking mindset to navigate the path ahead — and get back to the future.”
