Fund Managers Prepare for a Less Frenetic Market in 1994

As local and overseas investment markets served up spectacular returns in 1993, leading fund managers and financial advisers are warning investors to tone down their expectations for 1994. Market pundits predict a year or two of low inflation, low interest rates, and lower investment returns. Fund managers and advisers are emphasizing the importance of diversification and promoting the concept of a balanced or diversified portfolio to spread risk across multiple asset classes.

Key Takeaways:

• Fund managers expect lower investment returns in 1994, with a focus on low inflation and low interest rates.
• A balanced or diversified portfolio is essential to spread risk across multiple asset classes, including cash, fixed interest, shares, and property.
• Leading fund managers, including Dick Morath of MLC Investments, recommend investing in equity-type assets, such as shares and property, in 1994.
• Investors should be cautious and avoid negatively gearing into the equity market, as there is a risk of significant losses.
• A diversified overseas fund is recommended for investors seeking to invest in international equities, rather than a specialist fund targeting a specific region.
• Investors should also consider including fixed-interest investments, such as bonds, in their portfolio to reduce risk.
• Emerging markets, such as Brazil, Mexico, and Malaysia, offer a lower correlation with major world stock markets and can help reduce overall risk.
• Residential property is no longer an attractive investment, as low inflation has reduced its appeal, and investors are now turning to shares as a way to accumulate wealth.

Statistics:

• The all ordinaries index rose by about 40% in 1993.
• The strong performance of local and overseas equity markets is expected to be more stock-specific in 1994.
• Investors should expect lower returns from the local bond market in 1994, with double-digit returns becoming a thing of the past.
• Corresponding overseas exposure should be achieved through a diversified international fund, rather than a specialist fund targeting a specific region.
• Emerging markets, such as Brazil, Mexico, and Malaysia, offer a lower correlation with major world stock markets, which can help reduce overall risk.
• Property, specifically residential property, is no longer an attractive investment, as low inflation has reduced its appeal, and investors are now turning to shares.

Sources:

• MLC Investments
• Bankers Trust
• Rothschild Australia Asset Management
• Bridges Personal Investment Services
• Perpetual Funds Management
• IPAC Securities
• Property Investment Research
• BIS Shrapnel
• BT Securities
• PKF Financial Services