Risk assets, not safe havens, hold the key to real returns in
a yield-starved world, according to Seattle-based Russell
Russell's forecast for 2013 predicts a modestly positive,
albeit volatile investment environment, noting that investors
were likely to see more signs of a global recovery driven
primarily by a continuation of United States and Chinese
Even so, volatility would likely remain elevated through most
of the year, driven by ongoing recession and solvency fears
in the euro zone.
Russell's investment strategists identified six key themes
they believed would have the greatest impact on markets and
asset returns in 2013.
US market - addressing long-term issues at last?Euro zone -
finding the right policy mix.
Global equities - a rising tide may not lift all boats
Emerging markets - due for outperformance.
Global currency outlook - more of the same, but plenty of
Commodities - it was not just about monetary policy.
Russell had forecast since 2009 that the US economy would
follow a square root-shaped recovery pattern and events had
played out consistently with those expectations, the
strategists said in a research paper.
For 2013, Russell's base case scenario anticipated a
continuation of that reluctant-yet-measurably-positive
''Even though returns will be lower during this recovery
process, we do think they are indentifiable and attainable,''
global chief investment officer Pete Gunning said.
On the other side of the square root-shaped recovery with
real interest rates in negative territory was the reality
that investors still demanded a real return on their assets.
In the view of the dynamics of the US recovery, lingering
impacts of the global financial crisis and the invervention
by the US Federal Reserve, Russell was forecasting the net
effect on investors would be that of ''squeezing'' them out
of traditional safe-haven assets and forcing them further up
the risk curve, Mr Gunning said.
''Since only positive real returns build wealth, investors
are forced to confront the question of what is to be done in
a yield-starved world.
''This `squeeze play' impulses people into riskier assets. We
continue to advise clients to proceed purposefully and with
For investors, that meant attention to every detail of their
portfolio management, he said. Regional diversification would
need to be firmly in place as the economic centre of gravity
would continue to shift.
As traditional investments remained flat, alternatives likely
would matter more than ever. Volatility, while it brought
market stress, would also bring market opportunity for
multi-asset, adaptively-managed portfolios, Mr Gunning said.
• The US square root-shaped recovery will continue with US
economic growth of 2.1% for 2013, increasing to 2.5% to 2.75%
by the second half of the year.
• Tepid US core inflation for the medium-term at 1.9%.
• US 10-year Treasury yield at 2.15% by the end of the
• A cyclical recovery for the Chinese economy delivering GDP
growth of around 8% in 2013.