In the sector press

The inescapable truths that shape investment

The next 10 years look more challenging for the global economy

07/03/2019

Kate Rogers

Kate Rogers

Head of Policy

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.

Author

Kate Rogers

Kate Rogers

Head of Policy

Kate specialises in investment on behalf of charities, endowments and foundations and joined Schroders Charities in 2005 after four years with Kleinwort Benson Private Bank Charity team.

Kate is chair of the Charity Investors' Group, which is a membership organisation providing a forum for investment debate. In this role she has collaborated with CFG to launch a guide to written investment policies and 'For Good and Not For Keeps' published by the Association of Charitable Foundations in 2013. Kate also regularly writes on charity investment in the charity sector press.

Kate is also Portfolio Director at Cazenove Charities. 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, and governor of her local primary school.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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