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Nigel Green: Investors must learn to accept low returns

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22/06/2015
Nigel Green, founder and CEO of deVere Group, has warned that investors must accept the dawning of a new investment era, in which returns will remain low.

“It appears that we’re entering into a new investment era and, in this environment, investors should accept low returns from property, bonds and the stock market,” Green says.

“There are many factors contributing to the creation and development of this new investment era. However, the most common link is that Quantitative Easing (QE) has pushed down borrowing costs and driven cash savings into more rewarding investments. The combined effect has been to inflate asset prices, from housing to shares to government bonds.

“The big question is, will these assets preserve their value if/when the Bank of England (BoE) and the Federal Reserve eventually normalise monetary policy and raise interest rates? Or will their values fall? The U.S. looks likely to be about to find out, with market analysts increasingly confident of a Federal Reserve rate hike later this year.  The Bank of England might follow in a year’s time if wage growth starts driving inflation up.

“The UK housing market is currently looking a bit subdued for another reason. This is the set by the Bank of England macro prudential regulations that limits how much banks can lend for mortgages. This is sensible, as it will curb house price inflation, but could come as a shock for the more recent wave of buy-to-let purchasers who expected quick capital gains to compensate for very slender yields in London and South East.

“Among the other issues, slowing economic growth in China, volatility in Eurozone bond markets, partly on fears of a ‘Grexit’, and low levels of corporate reinvestment of profits in much of the developed world add to our sense of caution.

“Against this backdrop of a new investment era, good fund managers will come into their own as they will be able to secure the best stocks at the right time for their clients. As ever in times of flux, there will be significant opportunities, as well as challenges, but the opportunities will be actively sought with a fresh different approach and outlook, and investors are likely to need to accept lower returns in this new era.”

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