Three strategies for better returns
How do investors survive a low return environment?
Low returns are here to stay. Interest rates are continuing to remain low around the world with downgrades to economic growth coming thick and fast. The IMF lowered its forecast for global growth by 0.2% to 3.3% for 2015, the weakest level since the world economy contracted in the Global Financial Crisis in 2007. The Reserve Bank of Australia recently said growth has fallen to around to 2.8% from over 3%. Tracey McNaughton, head of investment strategy at UBS, says investors face a challenging environment that isn't going to change anytime soon. She says it is like taking a two year old to the supermarket, you can't predict what will happen.
McNaughton says investors can do three things to get their target investment return.
The first is to chase returns. But watch out as you can take unintended risks.
The second is to revise down your returns.
The third is to do something different with your money.
Investors need to be active and nimble in asset allocation while focusing on downside risk management Tracy McNaughton. She recommends looking at the wider universe of investments and being more unconstrained. This involves looking at shorting as well as long only investing.
When it comes to investing in bonds, McNaughton warns that there are liquidity issues with high yield bonds, making it harder for investors to get out of their bond investments. She says household holdings of corporate bonds have increased from 14% of all corporate bonds to 30% currently. "The new regulatory environment means when the rush for the exit from high yield comes, the exit door will be narrow because there is now a smaller inventory of high yield bonds on investment bank balance sheets," she says.