U.S. investors are well acquainted with market uncertainty and this nation’s wobbly economic recovery, but they’ve got nothing on worried investors elsewhere in the world.
So say investment managers with British-based Schroders who came to New York on Wednesday for a discussion of global opportunities in a world obsessed with quantitative easing, low bond yields, unemployment and the “disconnect” of almost disturbingly strong stock market growth.
“The disconnect between markets and the economy creates very interesting challenges and opportunities for investors over the next few years,” said Alan Brown, Schroders senior advisor, in introducing a panel discussion that revolved around the relative strength of U.S. markets.
Schroders is still expanding its foothold in the U.S., but the firm is a household name in 27 countries around the globe, managing $345 billion in assets as of Dec. 31. In comparison, BlackRock’s assets under management total $3.8 trillion across equity, fixed income, cash management, alternative investment, real estate and advisory strategies.
Karl Dasher, the incoming Schroders North America CEO who currently oversees $68.8 billion in global fixed income assets, said that individual companies’ “idiosyncratic” risk is the biggest risk today for U.S. credit. He pointed to this spring’s $28 billion leveraged buyout of H.J. Heinz Co. as an example of what he believes will be an LBO trend as shareholders pressure companies for better return on equity.
Meanwhile, Dasher said, the high yields that the U.S. bond markets experienced over the last 30 years are an historical anomaly. More typical are the low yields of today, dating back centuries, he noted. Plus, the foreign exchange markets are returning to their role of being the place where rebalancing among economies happens. Another trend he foresees is more adjustments through currency rates.
“Our message to bond investors is that you’ll have to take a more focused approach to generate a return of 2% or more above inflation, not nominal,” Dasher said.