Foresight - Markets

Infographic: Inescapable truths for the decade ahead

This interactive infographic illustrates our inescapable truths; the economic and disruptive forces we think will shape the investment landscape over the years to come.

11-02-2019

Keith Wade

Keith Wade

Chief Economist and Strategist

Schroders has identified a number of forces that could shape the investment landscape in the decade ahead. These represent our ‘inescapable truths’, which can help guide investors through a time of unprecedented disruption.

In a more challenging future environment, factors such as asset allocation, access to multiple sources of return, active stock selection and risk management will be critical in meeting the goals of investors in the coming years.

Economic forces

A confluence of factors set the scene for a slowing global economy

Decline in labour force growth, largely a result of declining fertility rates

Productivity growth low but improving, we believe emerging markets can offer greater potential for gains

Greater life expectancy to pressure government finances and temper recovery in productivity

China’s global influence will increase, but it faces a decisive transition period

Inflation pressure will be limited by slower spending, an ageing population and levels of debt

Interest rates expected to remain low by standards of pre-crisis levels

Disruptive forces

Disruption will come from a number of angles

Investment Implications

1.As interest rates normalise and QE unwinds, we think there will be greater focus on profitability and earnings growth as drivers of growth. Market volatility will also be high.

2.There will be greater divergences across asset classes and within markets, and absolute levels of returns for stocks and bonds will likely be lower than in recent past. Nevertheless, our research shows that the typical investor is expecting annual average returns of 10.2% over the next five years.

3.The result of this is that there will be greater need for active fund managers who can generate alpha i.e. beat the market in the decade to come.

In summary, after almost a decade of strong returns many investors have become complacent about the outlook. This assessment suggests that in a more challenging future environment factors such as asset allocation, access to multiple sources of return, active stock selection and risk management will be critical in meeting the goals of investors over the next decade.

As we enter the next phase of the post-global financial crisis era, these inescapable truths can help guide investors through a time of unprecedented disruption.

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