Over the past seven years, however, the opposite has been the case. With earnings and dividends likely to be stable at best, to get the same returns we have experienced over the past seven years, P/E and margins will have to continue their unusual pace of expansion. Unlikely I’d say.
And the fact that there is a highway to hell but only a stairway to heaven tells us something about the anticipated direction – and speed – of market traffic.
But with other western and Asian markets also expensive relative to their own history, UK property looking less attractive, government bonds heroically expensive, spreads on corporate bonds still tight and commodities looking like a lame duck, the cruel reality is that there seems to be nowhere to hide.
Splitting investments between a number of asset classes, or perhaps increasing your use of absolute return funds, seems a sensible choice. If markets do go to hell I’d rather lose 10% than 30% any day of the week and I’d wager a bet our clients feel exactly the same way.
Jupiter Absolute Return is worth a look. Run by James Clunie, it is rare to find a fund with such low historic correlation to other asset classes, even in the absolute return space. That could make this fund an effective diversifier and a good complementary portfolio holding.
Premier Defensive Growth is another I like. It seeks to deliver a consistent positive return in all market conditions by investing in a portfolio of assets that offer a predictable return over a defined period of time. The strategy has been thoroughly tested in a wide range of scenarios and has continued to deliver.
