‘Inventive’ strategies needed to generate returns

‘Inventive’ strategies needed to generate returns

Investors will need to become more inventive and look to risk premia in order to find returns over the next 15 years, according to JP Morgan.


Research conducted by the firm for its 2017 Long-Term Capital Market Assumptions found that market capitalisation of the S&P 500 grew in each of the last three expansions despite declining nominal GDP growth.

JP Morgan head of global multi-asset strategy John Bilton said market capitalisation in the current expansion has outgrown the economy 7.7 times, where the average ratio of market capitalisation to economic growth over the last seven expansions is only 2.7 times.

“It’s effectively borrowing returns from the future – the problem we face of course is we’ve now landed in that future,” he said.

“While we’re not overly pessimistic about the growth outlook – it’s going to be slower because of population growth and productivity – a lot of the gains in asset markets have already been banked, and so that’s going to make a big challenge for investors from this point forward.”

Investors seeking better returns should look to risk premia instead, Mr Bilton said, and investors need to adapt in order to access it and generate returns.

“Since there’s risk premia out there to be captured, it really just is beholden of investors … to look for ways to be more inventive, more creative, about extracting that risk premia, and indeed quite a lot more active and willing to embrace new techniques in order to take that risk premia, and deliver it back in to portfolios,” he said.

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‘Inventive’ strategies needed to generate returns
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