Gervais Williams, managing director of Miton Group, has published a new book, ‘The Retreat of Globalisation’ warning: “Index funds have passed their sell-by date. Expect more change in the markets in the next three years than in the last thirty.”
After Brexit and the election of Trump, the financial world is entering a momentous period of adjustment, Williams says.
“To date government and central bank stimuli may have boosted market valuations, but at the expense of distorting the corporate landscape. The ongoing deferral of corporate renewal has left the world economy drifting into stagnancy.”
Williams argues that it’s the electorate who have chosen to invoke political change to break the cycle. This will initiate a radical transition in economic policy, and market trends, which demands an equally radical change in investment strategies.
“Corporately this involves a period of renewed challenge, when the financially fragile and commercially overstretched will be further tested. Already share prices are diverging more than usual following the Trump success. Get used to it. In future 100 per cent of stocks in portfolios will need to be well positioned to generate a return. Actively limiting the downside risk within portfolios will become just as important as finding those offering potentially attractive returns.
“Index funds, ETFs and all other passive strategies have passed their sell-by date. This just isn’t the time to invest in funds with no conviction in their 8 per cent holdings,” says Williams.
The book outlines some of the metrics that will define success going forward. In particular Williams suggests that prioritising individual stocks that are investing for productivity improvement, and those which offer outstanding service levels, will outperform disproportionately in future.
Readers of ‘The Retreat of Globalisation’ will be alerted to the contrast between the long period of stability of asset allocation preferences over the last 30 years, relative to the scale of change now coming through.
The book highlights the dangers of sitting back with a status quo portfolio when changing market trends could undermine future returns and seeks to offer investment strategies that are better placed to address the forthcoming challenges as well as detail on some of the metrics to identify the best performing companies going forward.