Newton's Stewart: Investment industry lags market reality
From News Feb 22 2012 BY: Esther Armstrong
, Senior Reporter
, Portfolio Adviser
Newton's Iain Stewart
The industry's product development and investors' expectations are lagging markets by nearly a decade as the end of the 'great moderation' seen between 1980 and the early 2000s heralded a period of lower returns and higher volatility.
According to Iain Stewart, director of investments at Newton, "pretty much all asset classes" went up for a long period during the 'great moderation', with UK equities broadly seeing 20% returns per year.
"Passive investing became an obvious one, which was quite rational if the expectation was that asset markets would broadly go upwards. There was also a proliferation of specialists, you could be an investment specialist in just about anything and make money and build a career."
During this time the structures of investment management propositions became more specialist with single sector and asset class funds and multi-asset offerings were put together through fund of funds.
Stewart said: "The one thing we are pretty sure of is we are not on the cusp of entering a period like that of the 'great moderation'."
This means the focus is as much about "not losing money as making it" and not necessarily chasing the upside all the time, but looking for less loss and participating in the upside.
Stewart argues this is a return to a more 'normal' investment environment and so investors' idea of risk should return to the more traditional concern of not losing money, rather than missing out on gain.
This is the type of environment absolute return vehicles have tried to mitigate, and Iain admitted it was yet to be seen whether they would achieve their purpose, but he maintained they had the right and relevant target in mind.
Do you think the investment environment has fundamentally changed? Will this remain the case for an extended period? Let us know below.