The inescapable truths that shape investment
The next 10 years look more challenging for the global economy
It has been more than a decade since the financial crisis, and loose monetary policy has helped drive strong returns. But have investors become complacent about the outlook? What does the next decade hold?
In a far-reaching piece of research, my colleagues at Schroders have identified a list of inescapable truths they believe will shape investment markets over the next 10 years. These disruptive forces are likely to provide challenges and opportunities for investors. But what are they and what are the implications?
The next decade certainly looks more challenging for the global economy. Demographics will mean both an ageing population and a slow-down in growth in the working population. And there will no longer be the tailwind of ultra-loose monetary policy, where interest rates have been kept well below inflation and returns have been bolstered by quantitative easing. As interest rates go back to more normal levels and quantitative easing unwinds, market volatility is likely to increase and overall market returns will be lower.
This means investing passively – such as tracking a market index – is unlikely to reap the returns investors have grown to expect. The implication is simple: there will be more need for active fund managers who can beat the market.
The research identifies four disruption sources: market, technology, political and environmental.
Market disruption comes in the form of changing patterns in finance and the rise of peer-to-peer lending and crowdfunding, alongside the impact of the end of quantitative easing.
Technological progress will continue to challenge business models, and the use of robotics and artificial intelligence have implications for both unemployment and inequality. Political disruption is set to continue as government finances remain under pressure, leaving it a challenge to meet voter expectations.
And finally, rapid action is needed to tackle the impact of climate change and unchecked environmental damage could have severe economic and social consequences.
The research suggests a more challenging future investment environment, one in which charity investors might need to rely on additional sources of return, such as active asset allocation and investment selection, to bolster their investment results and allow them to meet their long-term spending commitments.
So as we enter the next phase of the investment cycle, perhaps these inescapable truths can help guide long-term investors through a time of unprecedented disruption, allowing long-term charity investors to maintain their spending and support their missions in a decade that looks set to pose some significant social, environmental and financial challenges.
Co-head of Charities
Kate specialises in investment on behalf of charities, endowments and foundations and has over 20 years of experience, with 15 years at Schroders and Cazenove. She is a CFA charterholder and has a BSc (Hons) in Natural Sciences from the University of Durham, is Chair of her local community foundation, Vice-Chair of her local primary school and Chair of the Finance Committee of the Cripplegate Foundation. She won a Women in Investment Award for her work with the Charity Commission and FCA creating a new charity investment vehicle.
She has researched and co-authored a series of publications on Charity investment best practise including 'For Good and Not For Keeps', which examines sustainable expenditure, ‘Intentional Investing’, which researches how charities can align their investment policy with their aims as an organisation, and more recently ‘Time and Money’, which explores how charities can make the best use of longevity. Kate was chair of the Charity Investors' Group for 12 years, standing down in 2019. In this role she collaborated with CFG and authored a guide to written investment policies. Kate also regularly writes on charity investment in the charity sector press.
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