Adapting to changing horizons

If there is one thing investors have learned from the past few years, it is that it is unwise to rely on past trends. From politics to technology, old assumptions are being overturned.

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The latest edition of our flagship institutional publication, Investment Horizons, is now available for download, featuring six articles on a range of interesting topics where change is observable.  But with change comes opportunity: for investors able to adapt, we think the outlook remains bright.

Robotics is a case in point. Like the internet before it, the technology of automation is set to eviscerate old industries and upend employment practices. But should investors presume that the effects will be universally bad? Certainly, the prophets of doom see what has been called “the second machine age” leading to a dystopian society, divided by its participants’ ability to profit from the new technology. We are much more optimistic. Either way, it is clear that investors need to engage in depth with the progress of robotics.

At a more prosaic level, “automation” in investment is turning investors away from active management, where it is often argued that higher trading costs mean lower returns. Once again, assumptions can lead investors astray. We examined the evidence and found little to support the case. What we did find is that investors need to keep a particularly close eye on their managers as the penalties for failure are higher with high turnover funds. We’ve also looked at the extent of the flows going into passive and concluded that as investors have jumped on the cheap bandwagon, the paradox of passive is that it could turn out to be an expensive mistake.

Scepticism about emerging markets is widespread.  That has certainly been the right call since the financial crisis in 2008-09, but this year has seen that change as emerging markets have started to outperform again. We identify the most efficient ways of achieving emerging markets exposure.  Here again, rigorous analysis will provide a better guide for investors than glib assumptions. It’s a conclusion that applies equally to the management of risk. As our penultimate article points out, the science of risk has moved on greatly in recent years. Investors can no longer simply rely on one measure; they need to use several to build a many-dimensional view of where the possible threats to their portfolios lie.

Finally, we take a look at the investment opportunities in infrastructure, a sector that embraces everything from airports to green energy. We find that there is still a lot to be attracted to, notably stable cashflows and high-quality assets, but investors need to be careful to pay the right price.

To read the full papers, please click on the link below.

Read full reportInvestmentHorizons _October 2017_website
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