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Out with the ‘new normal’ of investing: Pendal

Yasmine Masi20 November 2023
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Pendal’s multi-asset team has urged investors to rethink their asset allocations, as the ‘old normal’ of investing returns alongside central banks recalling more conventional monetary policy.

Portfolio Manager, Alan Polley, said the old normal refers to the period before the global financial crisis in 2008/2009, with the new normal describing the last 15 years of unusual monetary policy implemented worldwide.

“The last decade and a half, post the global financial crisis, we had global central banks taking non-conventional monetary policy to the extremes,” he said.

“They took interest rates close to zero. Some countries went negative. It means we’ve had very low returns from traditional markets like bonds and equities.

“Absolute returns were quite low. Inflation was low too — and of course that was part of the reason why central banks were doing this extraordinary monetary policy.

“But nevertheless, absolute returns were unattractive. The whole return environment has been challenging over the last decade-and-a-half.”

Polley said the ‘new normal’ market conditions pushed investors to shift and expand their capital allocation approaches into higher risk assets, emerging markets, small caps and other less liquid investments. This also resulted in a growth-style bias.

“They sold optionality for income. Private markets became very popular. They took on additional risk in some form, whether it be liquidity risk or market related risk or even complexity risk,” he said.

“Growth stocks with longer duration outperformed value style investing for 15 years. People started using the term TINA – there is no alternative.”

Polley highlighted a more positive investment horizon, especially for those in or nearing retirement who can lower their exposure to riskier assets but still generate desired returns.

“There is less need to chase risk with non-traditional assets. There’s less need to shift out the risk spectrum. Chasing of liquidity premiums is less necessary now,” he said.

“Investors need to ask themselves: do they need to chase risk when bonds have again yields of around five per cent, and equities have reasonable dividend yields?

“Investors can be in quality equities and bonds and have a greater likelihood of achieving their return targets. That’s a great environment for investors versus where we’ve been.

“So investors should be thinking about leaning back into traditional asset classes out of non-traditional asset classes, de-risking their portfolios and start running a more ‘old normal’ portfolio for this ‘old normal’ environment.”

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