Investors wishing to meet return goals could put as much hope in prayer as in their portfolio structure, according to Wurts & Associates which was forecasting a continuing “tough” economic environment.
In a quarterly research conference call this week, Wurts told clients that – no matter how portfolios were structured – meeting goal returns of 7.5 per cent in the upcoming period was going to be a struggle and investors were left with no real options.
The consultant said allocating funds to alternatives was not the clear answer as the research demonstrated that asset class was tied into macroeconomic conditions.
“The only way you could possibly eke out enough additional return is by doing massive allocations with asset class and sacrificing liquidity in the process, which will hinder your ability to take advantage of more attractive valuations if and when they occur,” Wurts’ director of research, Eric Petroff, said.
He also warned investors of pursing the option of alpha as a broad-brushed strategy, leaving investors with three unappealing options:
first, sitting tight and waiting for the challenging period to pass was one choice for investors, with Wurts suggesting investors reduce risk, wait for the capital markets line to go upward and buy more attractive valuations in the future;
second, investors also had the choice of accepting what the market was willing to provide, based on current portfolios and lower return expectations; or
third, investors could embrace what Wurts called the “hope premium”, and pray everything was going to work out well.
The December 2010 quarterly research by Wurts showed GDP growth was improving, but chief executive Jeff MacLean warned there were still long-term barriers.
He cited the probability of current low interest rates rising as a huge problem for the long-term recovery of the US economy, due to societal debt loads. He also predicted higher inflation as a result of the second round of quantitative easing, higher commodity prices and consistent government deficits.
“It is a very difficult thing to tell clients, this research is telling us it’s going to be a very challenging environment to make goal returns,” Petroff said.