themes.

searching for yield.

The aftermath of the global financial crisis of 2007-09 has created unprecedented challenges for investors. Widespread low or negative yields in key markets mean many asset owners face low expected returns and even material negative carry in their bond allocation, forcing them to look elsewhere for yield. When it is too risky and of little benefit to extend portfolio duration in the search for yield, investors have to consider taking more credit risk, more liquidity risk, or both.

To this end, we believe that emerging markets still offer attractive return potential. We also view “crossover credit” – corporate bonds rated at the lower end of investment-grade (BBB) and the higher end of high-yield (BB) – as particularly relevant, especially for more conservative investors, as the nature of investment grade corporate investing evolves.

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rethinking asset allocation.

The global financial crisis has led to a new fixed income paradigm where the nature of bonds has fundamentally changed. In this new world, fixed income can no longer provide capital preservation, yield and liquidity at the same time.

Also, equities – traditionally counted on to meet investors’ capital growth needs – require a more selective approach given the prolonged rally experienced by some key markets. This presents investors with significant and broad-reaching asset allocation challenges and as these seem unlikely to disappear anytime soon, investors are being forced to rethink how they allocate their assets.

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spotlight on emerging markets.

Strengthening fundamentals, improving economic growth and structural reforms are helping to establish emerging market equities as a mainstream asset class, with excess return potential. In our view, they offer exciting long-term growth prospects at an attractive price. However, the asset class is by no means immune to short-term shocks and macro-economic uncertainty so investors should be discerning.

A disciplined and highly selective investment process – such as our discounted excess economic returns approach – is necessary to identify the most attractive business models. Choosing the right approach to investing (especially in an impaired liquidity environment) is also of key importance when investing in emerging market debt, which we believe presents an attractive yield opportunity for investors.

exploring european equities.

Europe’s economic recovery, increasing business confidence, and accommodative monetary policy make it an attractive destination for investors, in our view. With political worries abating across the continent, many investors are already taking a closer look at European equities. Yet market valuations remain attractive, in stark contrast with US equity market valuations, in our view.

We believe that companies generating a return that exceeds their cost of capital tend to outperform over the long term and could benefit the most as investors reassess the investment case for european equities. To access these opportunities, we believe investors need to combine a disciplined approach with fundamental analysis and invest with conviction.

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investing with impact.

Investors are increasingly taking into account extra-financial considerations when selecting their investments and want their capital to generate positive impact. But the multitude of acronyms (SRI and ESG to name but two) and variety of approaches on offer can be at best confusing and at worst misleading. We believe this entire field of investing can be boiled down to three key categories.

However, investors must seek out the right expertise or risk their capital being put to work in a way they did not intend. For example, companies purporting to be highly sustainable may just be talking the talk – our proprietary approach to analysing companies seeks to avoid this by looking beyond what companies say to focus on tangible results. Similarly, for impact investing, sophisticated selection and monitoring criteria are essential if investors are to have any confidence that their capital is making a genuine impact.

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