End of the Golden Age?
Traditional investment strategies based on the norms of the last 30 years might struggle to deliver the outcomes desired in a new era of potential lower growth and poorer returns.
Investors are on the cusp of a possible frightening shift in global trends set to scythe investment returns for shares and bonds over coming decades. This is the conclusion of a report published by McKinsey & Company in April 2016, with the consultancy arguing that the golden age for investors is over after a 30-year "bull" market for both asset classes.1
In its report, McKinsey points to an alignment of positive factors that previously boosted long-term returns in the past three decades, including the rise of China to the world’s second largest economy, sharp falls in inflation and interest rates around the world, and strong global growth. U.S. and European equities averaged returns of 7.9 percent a year, while bond returns averaged 5.0 percent and 5.9 percent, respectively, over the same period. And, this was achieved despite the jolts to financial markets triggered by the dot-com crash of 2000 and global financial crisis of 2008.
With traditional investment strategies unlikely to deliver the same level of returns, a fresh approach to running investors’ money may be needed to provide adequate outcomes in a world of stretched valuations and negative interest rates. One outcome-focused, benchmark-free option is multi-strategy investing.
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1Source: "Diminishing returns: Why investors may need to lower their expectations," McKinsey Global Institute, April 2016