Iain Tait, Partner, Head of Private Investment Office at London & Capital, gives his predictions for 2016
What are the key investment management industry trends?
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In 2016, we’re likely to see more investment management firms rationalise their investment and client specialisms in response to both regulatory and efficiency demands. It is likely that this trend will lead to further division in the wealth management industry with firms either targeting larger clients with specialist services or smaller mass affluent clients with streamlined investment management offerings. We have already seen a narrowing of investment ranges by investment firms; research we carried out earlier this year has suggested that UK clients tend to receive a narrower range of investment options than those in the US, for example. At a certain level, there will always be space for discretionary bespoke wealth management and it is a shame that it seems that the starting point for portfolio sizes across the industry is continually getting higher and higher.
What will the macro picture look like?
In terms of the macroeconomic picture, despite the economic progress made since the crisis, levels of debt within developed markets remain high and we expect that the deleveraging process will drag on growth, keeping inflation subdued and compel Central Banks to maintain low interest rates for some time to come.
I expect that sentiment towards asset classes will be patchy in 2016. Equities, while not a bargain (valuations will likely remain above historic averages in developed markets), deserve an overweight position for the time being. Developed market equities are expected to return around 7-10% in 2016 and we anticipate that Europe will outperform the US, given the Eurozone’s improving growth and the supporting effect of further quantitative easing. Emerging market equities will continue to be an area best left for the brave-hearted or experienced though.
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By GlobalDataThe long heralded end of the 20-year bull-run is overblown; it has merely matured. Fixed income should remain a key component of any long-term investment strategy with opportunities within sub-asset classes such as Financials still available.
Overall, it is likely that 2016 will be more volatile than 2015: the uncertainty surrounding interest rates, China’s hard landing and quantitative easing are all likely to play a role. But also, the market has become soft towards volatility, so when it does happen, the impact is likely to be compounded.
How is this impacting client investment sentiment?
When I started my career nearly two decades ago, the Bank of England interest rates were 6.6%, now they are 0.5% and have been that way for several years. When the risk free rate is so low the reward for owning riskier asset classes is inevitably lower and this is the principle reason why investors should expect more conservative performance in years to come. Investors can be forgiven for expecting an annualised balanced portfolio return of c+7% based on historical averages and guidance but looking towards the future rather than the past it is increasingly difficult to see how these returns expectations can be met using the same degree of risk. This is something that should be factored into discussions with clients throughout 2016.
