Avoiding a lost decade of returns

How might your clients feel if they were told that they wouldn’t see an investment return from their assets for the next ten years? This is the very real risk that a traditional 60% stock and 40% bond portfolio can face.

According to Atrium Investment Management’s Chief Investment Officer Tony Edwards, if you review the performance of an investment portfolio invested this way over a 150-year period, it is clear that markets go through extended periods of low or no returns.

These are the lost decades – period ranging from 6 to 23 years where returns for investors were barely above zero. In a 150-year period for this type of portfolio, stretching back to 1871, there were six such periods totalling 72 years in which no returns were made.

“An extended bull market cycle can raise the risk of a future lost decade,” said Edwards. “These tend to start with high valuations in either stocks or bonds – this means one (or both) assets can get expensive and then fall away over the next couple of years.”

Given the current outlook, he said it is worthwhile for financial advisers and their clients to consider whether we are now entering into a similar period of potentially lost returns and to consider how their portfolios might perform in this environment.

The importance of diversification away from stock and bond returns becomes critical in this environment. Atrium Investment Management’s objective is to achieve a smoother path of returns for investors, by taking a well-diversified and multi-asset approach to portfolios. A focus on risk management, consistency in returns and evaluating the downside risk are also key tenet’s of the firm’s investment philosophy.  The team has navigated the more recent volatile period by having less reliance on equities and seeing performance from areas like Alternatives.

With the spread of the COVID-19 pandemic, corporate Australia is now bracing for volatility to continue. Over the past month, Edwards said $16 billion in equity raisings had occurred in Australia, a strong signal that companies are facing uncertainty and are looking to shore up their balance sheets.

While positive signs such as the slowing of the pandemic , the size of stimulus package in Australia and the hope of a vaccine in 12-18 months are emerging, negative factors such as the risk of secondary infections, a reinstatement of containment and this continued uncertainty continue to linger.

Did you miss our Webinar?

Tony Edwards, CIO at Atrium Investment Management, provides insights on how clients can benefit from ‘Risk Targeted’ construction methods & techniques in current market conditions. Watch the webinar here. 

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