An opportunistic mindset and tilting portfolios from “beta” to “alpha” may help investors contending with low returns from traditional investments, says Mercer
Faced with continued uncertainty in the economic and political environment, institutional investors who are able to act opportunistically may benefit from return opportunities created by a combination of volatility and reduced market liquidity, according to Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC). Mercer’s 2016 Themes and Opportunities paper highlights a number of investment themes that Mercer believes are important for investors to reflect in portfolios in 2016.
“Our central case is for the developed world economy to grow at a moderate pace in 2016, while growth in emerging markets may stay below trend, especially if commodities remain weak and the U.S. dollar stays strong,” said Deb Clarke, Mercer’s Global Head of Investment Research. “Against this backdrop, investors are grappling with a number of sources of uncertainty – from the slow-down in China to the expected path of monetary policy – which creates both risk and opportunity for investors.”
Mercer’s paper outlines a number of investment ideas, under four broad headings:
- Reduced liquidity in many supposedly liquid markets lays the ground for periodic bouts of elevated price volatility and sizeable “gap moves.”
- A maturing credit cycle calls for a more cautious stance and may ultimately create opportunities in the distressed debt space.
- Tilting portfolios from “beta” to “alpha” may help address the challenge of a “low return world.”
- Institutional investors with a long investment horizon are encouraged to think long term by making use of their “illiquidity budget” and adopting a broader perspective on risk that incorporates environmental, technological, social and geopolitical risks alongside traditional economic risks.
“With relatively few markets that can be described as ‘cheap’, investors will be well-served by remaining patient but ready and able to act opportunistically when markets move to extremes,” said Ms. Clarke. “Investors should ensure that the risks inherent within their strategies remain appropriate given their risk tolerance, as we may now be in an environment of heightened uncertainty and fatter tails.”
Mercer’s “Themes and Opportunities” was released in conjunction with its “Economic and Market Outlook 2016 and Beyond” paper, which delves into macro-economic themes behind economic growth in major world regions, as well as five primary “risks ahead” that will affect economies and markets in 2016.
Notes to Editors
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.
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