(February 20, 2013) — A rosier economic outlook brings investment opportunities and risks in 2013, says investment consulting firm Mercer.
And while investors should maintain portfolio diversification, they should reconsider ‘safe haven’ government bonds in order to be alert to inflation risk, improve shareholder engagement, and be open to non-standard opportunities.
“Although uncertainty continues to hover over the global economy, heightened by the degree of policy experimentation, there are grounds for believing that some lifting of the gloom will occur in 2013,” according to Andrew Kirton, global chief investment officer for Mercer. “Safe haven assets are still pricing in at the same subdued levels and yet the sense of crisis has abated. If the corporate and private sector state of mind shifts gear from no growth to low growth, this bodes well for the performance of risk assets such as equities, and may trigger competitive behavior and improving economic conditions. Wage restraint, corporate restructuring and an improving credit environment in parts of the West may all also signify some revival of market spirits,” he said in a statement.
Divyesh Hindocha, Mercer Investments’ global director of consulting in Mercer’s Investments business, added that differentiated economic activity between countries will provide opportunities for bond and currency managers. “The corporate sector is awash with liquidity and, while this may not get spent immediately, it provides a solid foundation for any recovery.”
Along with recommending a reduction in the commitment of ‘safe haven’ assets, Mercer is encouraging clients to take the following approach:
1) Maintain broadly diversified asset portfolios.
2) Hedge against inflation to protect against the possibility of unconventional central bank policies resulting in an increase in inflation expectations.
3) Improve shareholder engagement, using ownership rights to ensure that shareholders are receiving a fair share of the returns generated by their capital. “Investment managers should be encouraged to undertake meaningful engagement with the companies in which they invest,” Mercer says.
4) Avoid unnecessary turnover and manage capital efficiently.
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