Most fund buyers attending the Expert Investor Denmark forum in Copenhagen last week expect their equity portfolios to return only between 3 and 6% annually over the next five years.
And they are quite right to not expect a great return since none of the factors that normally drive market returns give reason for positivity, believes Céline Piquemal-Prade, head of global, US and Japanese equities at Comgest.
“Valuation, earnings and liquidity should drive markets, but none of those are strong,” she said, speaking at the forum. “Earnings are not growing, liquidity has already contracted, and on the valuation side you should take into account that profit margins are similar to 2007 now. Nothing seems to be able to support the markets going forward,” she concluded.
On the bond side, Danish fund buyers expect returns to be only marginal, as negative yields are taking their toll. So the Danes are planning to stock up on high yield bonds and emerging market corporate debt to find some yield. Both asset classes are more popular in Denmark than anywhere else.
However, lower liquidity is making things more complex, and expensive, in riskier asset classes such as EM corporate debt, said Emma du Haney, a fixed income specialist at Insight Investment.
“We for example have had to increase the number of dealers in the past few years. You can’t anymore take a 100 million-trade in one go anymore. Instead it takes 10-15 tranches to do that,” she said. Insight has also divested from the debt of companies with a market cap below $300m because of the vulnerability of these little-traded bonds to a liquidity crunch.
But lower liquidity als leads to such a thing as liquidity premia, Du Haney reminded the audience. “So we have developed a new strategy investing in less liquid securities where fundamentals can be extremely attractive,” she said.
Click here to see a full overview of delegate voting results from Expert Investor Denmark.
And here you can see a selection of photos taken at the event.