Investment manager Orbis Investments has voiced its concerns that the investment landscape is fundamentally changing and that advisers are not properly prepared.
In the whitepaper titled Sunrise on Venus, the firm warns that many advisers and investors are focused on last decade’s winners, with the changing force of higher inflation likely to drastically alter the market environment. It added that growth and passive strategies have been popular during the previous market regime, and that investors are still positioned as though these assets will continue to deliver strong returns.
However, it points out that higher, more persistent or more volatile inflation could break the trends that have boosted those strategies over the last decade.
Orbis warned that stockmarkets are expensive in aggregate, bond yields are not yet high, and that passive funds concentrated in previous winners such as large US stocks and technology-focused companies.
Rob Perrone, investment specialist at Orbis Investments, said: “The last decade was a fabulous time to own financial assets. Multiple forces reduced inflation, letting central banks lower interest rates and print money in response to every crisis.
“Investors have ended up concentrated in the winners of that world, many of which are now richly priced. But higher inflation could turn that world upside down, and if it does, the most richly valued assets could suffer the most. We believe investors must adjust either their expectations or their portfolios.
“When we look at how many assets are priced, we see signs of complacency, and we worry that advisers may be taking more risk than they realise. By sharing this analysis, we hope to arm advisers with historical context and current observations that can help them prepare for what lies ahead.”