Seeking returns - has everything changed?


At Crestone’s most recent investment forum, we asked panellists to debate the risks to an otherwise improving economic outlook and how markets may respond to a near-term spike in inflation. In particular, we asked panellists to discuss where investors should be seeking protection and returns in their portfolios, given elevated valuations and likely volatility.
Our panellists included Carmel Hourigan, Office CEO at Charter Hall, Tim Samway, Executive Chairman at Hyperion Asset Management, Andrew Maple-Brown, Co-Founder and Managing Director at Maple-Brown Abbott Global Listed Infrastructure, Vimal Gor, Head of Bond, Income and Defensive Strategies at Pendal Group, and George Tharenou, Chief Economist at UBS Investment Bank.

Four key themes emerged from the forum:

  • We are no longer in a world of policy conservatism — There are few headwinds to a strong rebound in global growth in 2021, as economies reopen on the back of an increasingly successful vaccine rollout and massive policy stimulus. For now, medium-term fiscal rules, such as balanced budgets, are largely being ignored while central banks flag a long period of free cash. Australia looks well placed to outperform, with activity likely to regather to levels not seen prior to COVID-19 by mid-year.
  • Near-term inflation pressures are likely to recede in H2 2021 — While inflation is likely to rise materially in coming months, led by a rebound in oil prices and supply pressures as consumer demand recovers, elevated debt burdens, ageing demographics and advances in technology are widely seen as likely to keep inflation contained over the medium term. Globally, unemployment rates remain above pre-COVID levels.
  • Valuations may be less stretched when you dig below the surface — Equity investors need to focus on businesses with long-term earnings streams, rather than labour over short-term price earnings ratios. In contrast, the fixed income asset class is seen as a difficult place to find returns, with credit markets increasingly being driven by flows. Despite a likely rise in bond yields, bond rates are likely to remain low and valuations within property and infrastructure have not increased materially.
  • Unlisted real assets can provide a meaningful hedge to inflation risk — The search for defensive assets with yield is increasingly leading investors to look at unlisted property and infrastructure assets. While discipline is required in regard to market segmentation, inflation-linked revenue is increasingly favoured. Real assets also capture opportunities around online purchases, decarbonisation and electrification.