Investors must not ignore long-term factors: AllianceBernstein

Investors worried about the short-term outlook for the global economy should not be distracted from the effect of long-term factors on portfolio performance, an AllianceBernstein economist has warned.

Speaking at the Australian Institute of Superannuation Trustees conference in Hobart, AllianceBernstein's senior economist (Asia-Pacific) Guy Bruten outlined the long-term factors he considered relevant to portfolio construction.

Investors should pay close attention to the impact of emerging markets on the global economy, he said. Rising inflation risks in certain parts of the world should also be factored into the portfolio construction process, Bruten noted.

"A number of investment implications arise from these themes, of which three in particular are worth highlighting," he said.

Bruten warned investors to be wary of low bond yields.

"As a starting point for a global sovereign bond allocation, the current 10-year US Treasury yield of around 2 per cent makes it almost impossible to generate a reasonable long-term return - regardless, arguably, of your view on inflation. This supports the case, in my view, for a benchmark-unaware approach to fixed-income investing," he said.

Bruten also reminded conference delegates that the current global macro-economic volatility makes for a wider dispersion in growth and inflation between countries. This, in turn, makes a case for more active fixed income investment management, he said.

It also suggests investors should consider broadening their scope and, for example, look to Asia "as an alternative source of bond beta," he said.

"Another consequence of heightened global macro-economic volatility will be shorter and sharper business cycles," he said. He therefore called for more active asset allocation, and flexibility when making investment decisions. At the very least, he said, market volatility points to the need for "a more nimble decision-making structure in the investment process".