Report by BNY Mellon boutique says financial repression set to continue as interest rates remain low
LONDON and NEW YORK, February 23, 2012 — According to Newton*, part of BNY Mellon Asset Management, investors seeking 'real' returns over inflation need to look beyond index benchmarked funds and re-evaluate their attitude towards risk. Newton believes the scale of the western world's debt-related challenges, and the weakness of its economic growth, means that the foreseeable future will be one characterised by lower returns and greater asset price fluctuations.
Iain Stewart, investment leader – global funds, at Newton*, comments: "In the current investment environment if investors desire a reasonable 'real' return they must accept more risk, in volatility terms. The current debt crises in the western world are so intractable that it is highly likely that 'financial repression' in the form of both long and short-term interest rates being set by the authorities at below the rate of inflation will continue to be a preferred policy for some time to come."
Newton's report discusses that investors are not currently receiving a real above inflation return from so called 'risk free' assets such as cash and government bonds and bills. In light of this, the report states that investors' risk outlook should return to more traditional concerns about losing the real value of their money rather than simply missing out on gains.
Stewart continues: "We believe that focusing on 'absolute' returns, rather than setting return objectives in relation to a benchmark, makes sense if the investment outlook continues to develop in the way we anticipate. It is likely we are in the early stages of a major transition, which will see a move away from the narrow specialisation and index based approaches encouraged by the bull market from the early 1980s until the early part of the last decade, towards more traditional, multi-disciplinary styles of investment."
Paul Brain, investment leader for fixed income at Newton*, adds: "Accepting more risk in volatility terms does not mean holding a portfolio that is more risky in the traditional sense of permanent diminution of value. Newton's equity and fixed income absolute return investment strategies look at risk in its broadest context. We aim to strike a balance between building a core portfolio of traditional assets, with the ability to produce an attractive total return in most economic circumstances and putting in place an 'insulating layer' of other assets, currencies and simple option strategies to hedge a range of scenarios, reduce volatility and protect capital."
Brain concludes: "For a number of years we have argued that investors are experiencing a transition to a different - but probably more 'normal' - investment environment, characterised by lower returns and greater asset-price fluctuations. Such ideas encouraged us to develop investment strategies that define why we believe that a focus on 'absolute' returns makes sense."
Newton* is a London-based global asset management subsidiary of The Bank of New York Mellon Corporation and part of BNY Mellon Asset Management. With assets under management of more than 45.9 billion pounds Sterling, including assets managed by Newton Investment Management Limited as dual officers of Newton Capital Management Limited and The Bank of New York Mellon, Newton's group of affiliated companies provides a broad range of award-winning investment products and services to individuals, pension funds, charities and corporations. News and other information about Newton is available at www.newton.co.uk.
BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $25.8 trillion in assets under custody and administration and $1.26 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com or follow us on Twitter@BNYMellon.
*'Newton' refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Capital Management Limited, Newton International Investment Management Limited, Newton Capital Management LLC and Newton Fund Managers (C.I.) Limited. Assets under management include assets managed by all of these companies except Newton Capital Management LLC, which provides marketing services in the U.S. for Newton Capital Management Limited. Except for Newton Capital Management LLC and Newton Capital Management Limited, none of the other Newton companies offer services in the US and Canada. Newton Capital Management Limited is registered in the United States as an investment adviser under the Investment Advisers Act of 1940. Unless otherwise stated, all information source BNY Mellon Asset Management as at 31 December 2011. This press release is qualified for issuance in the UK, US and Canada and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised. This press release is issued by BNY Mellon Asset Management (US & Canada) and BNY Mellon Asset Management International Limited (ex-US/Canada) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. Registered office of BNY Mellon Asset Management International: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorised and regulated by the Financial Services Authority. A BNY Mellon Company(SM)