A senior global investment executive has predicted international equities will be generating significant positive returns over the next 10 years, as markets have historically rebounded like this after a decade of poor performance.
“We’re in good company. A 10-year negative return is something we’ve only seen in World War I, the Great Depression, World War II, and the inflationary 1970s,” Fidelity International director of asset allocation Trevor Greetham said.
“The last 10 years were like that with the dotcom bubble, massive overvaluation and the collapse in valuations over the decade,” he said.
According to Greetham, bad decades like these are usually followed by decades of very strong returns.
“On average, after a lost decade you’ll get a 10-year real return of 11 per cent year in, year out. That is, the S&P beats inflation by 11 per cent every year for 10 years,” he said.
However, this positive outlook for the coming 10 years did not mean the period would be without risks, Greetham said.
“The markets will have to absorb a likely peaking out in the rate of recovery in 2010 and we are also likely to see initial steps to tighten fiscal and monetary policy in a wide range of countries. This could result in some choppy waters for investors,” he said.
Greetham recommended the best way for investors to manage the environment was to diversify their portfolios across asset classes.
In regard to minimising exposure to volatility, he suggested allocating funds to both commodities and bonds as these asset classes have the lowest correlation to Australian equities.
