Investors constrained by Australian instos

Australia's wealth management institutions do not cater for investors who want to take a position on whether the global economy is about to enter an inflationary or a deflationary stage, according to FRM chief executive Richard Keary.

Neither equities nor bonds are likely to provide good returns for investors in the medium term, Keary said. He pointed to US Government 10-year bonds, which have a nominal return of 2 per cent. When inflation is taken into account, the real return for US bonds over the next 10 years is zero at best, he said.

"Look at 10-year Government bonds - there's no inflation expectation. That to me is a recessionary environment, and in that environment growth assets simply don't make sense from an aggregate market-wide point of view," he said.

"If you look at most global equities indices, they've returned absolutely nothing [over the last 10 years], at about 25 per cent volatility," he added.

He posed a question to investors that he called a "conundrum".

"If you believe in deflation, why would you own any risk asset? If you're in the inflationary camp, why would you own bonds at all?" Keary asked.

The systemic problem was that Australian wealth management institutions were designed to produce diversified portfolios of stocks and bonds, he said.

This partly explained the rise of self-managed superannuation funds, since more investors were looking to retain control of their assets and back their macro-economic outlook, Keary said.

"It is now about differentiating between winners and losers rather than simply owning the lot. The institutions of wealth management are designed to make people own the lot," he said.