Focus on long-term results

Oksana Patron

1 September 2022

Despite the choppy conditions for investors in the FY2022, medium-term returns remain strong across traditional asset classes and reinforces the longer-term perspective required when investing, according to Calvin Richardson, investment consultant, Zenith Investment Partners.

With longer-term investment returns looking relatively attractive, investors should be reminded that “the best and worst days in the market are clustered together”, and that panic selling was typically a wealth-destroying endeavour.

“We understand the temptation to base your investment decisions on the tunnel vision created by the recent pullback; however, we instead advocate for a more measured and forward-looking mindset to navigate the path ahead – and get back to the future,” Richardson said.

As far as the Australian shares were concerned, Zenith’s forecasts indicated higher returns for Australian shares relative to international shares, with broadly similar volatility levels, which prompted a pivot to overweight Australian shares.

Further to that, this view was supported by the change in market leadership which favoured Australia’s commodity exposure.

“The remainder of the financial year delivered disappointing returns for investors, as both equities and bonds came under intense selling pressure,” Richardson said.

“And although our short-duration fixed income sleeve and well-diversified alternatives line-up offered some insulation from the market dislocation, we were unable to fully protect investors from the excessively negative market sentiment and subsequent market overshoot.”

Richardson also said that washout in markets, whilst painful, led to a lot of the normalisation expected to unfold over a longer period, with the ensuing multiple compression leaving valuations for traditional asset classes looking a lot healthier versus the start of the year, prompting Zenith to update our 10-year return forecasts.

“For investors, the silver lining of the market turbulence is that you now have a higher probability of meeting your return objectives, particularly for lower risk-profiles given the dramatic repricing in fixed income markets. For investors in a ‘Balanced’ portfolio, this translates to a revised 10-year expected return of 5.7% versus 4.4% at the start of the year,” Zenith’s consultant noted.

According to him, despite pockets of weakness emerging in the global economy, there were still ample positive catalysts remaining, which included low unemployment, strength in the corporate sector and cashed-up consumers.

“Clearly with the benefit of hindsight we recognise that this environment hasn’t suited our small caps bias, however we firmly believe investors will be more than compensated for this tilt over the longer term.

“And despite the elevated volatility associated with these market segments, this is the ever-present admission price associated with generating attractive returns through-the-cycle.”