Asset manager Newton has warned investors that the heralded economic recovery may collapse and the current upward trend may simply be a sharp spike in a volatile pattern of low returns that will play out over the next decade.
Peter Hensman, global strategist at Newton, a global asset management subsidiary of BNY Mellon, said that the team was “reluctant to share in the current optimism” and dismissed widespread talk of economic recovery and a long period of growth.
Doubt was cast over current claims that the economy might be heading back to a pre-credit crunch period, with the belief that debt, ageing populations and low returns were as great a problem as ever and would remain so for the foreseeable future.
Iain Stewart, Newton’s investment leader, pointed to other issues including state intervention and the influence of the unfolding Chinese slowdown, which he said would further complicate the global economic outlook.
Stewart was particularly wary about the effect of quantitative easing (QE), explaining that it was likely to create distortions throughout the economy.
He was damning of the portrayal of QE by governments as a “helicopter drop of money spreading evenly into the economy”. Pointing to stagnant earnings despite rising equity prices, Stewart argued that the opposite was true as QE was creating greater economic disparity.
Stewart went on to argue that QE combined with “the largest collective debasement of currency ever” and a widespread perception of recovery, was likely to lead to asset price bubbles.
Newton’s answer was to continue backing a cautious portfolio, which maintains confidence in gold as a long-term security, despite it falling by 28% during 2013. Over the past 10 years the Newton Real Returns portfolio, a £9bn ($15.3bn) fund that has just passed its 10-year anniversary, has had a reduced focus on high-yield investments and investment in financials, utilities and industrials in favour of health care and telecoms.
Helena Morrissey, CEO, summed up Newton’s strategy for the fund as an “alternative to alternatives” and noted it had outperformed the MSCI World Index over the past 10 years.
Newton has some direct exposure in emerging markets, particularly in technology and telecoms, but investment manager James Harris admitted to not being overly optimistic about such markets.
“There are a lot of great opportunities,” said Harris, but he noted there were also a lot of problems. For example, he noted China was far more distorted by government policies, and therefore more difficult to predict, than the West.