Investors must adapt to increasing volatility

Investors need to adopt better risk management and a ‘total return’ approach in light of significantly lower global economic growth in 2011, according to ING Investment management (ING IM).

ING IM’s outlook for 2011 is sour because it expects real global gross domestic product (GDP) to be around 3.8 per cent compared to 4.8 per cent in 2010, with the added concern of a 25 per cent possibility of another serious downturn. Its expectations are further dampened in light of what it sees as “untested policy prescriptions from governments and centrals banks” in an environment where it believes much of the developed world has only made 30 to 40 per cent of the adjustments needed. ING IM also stated that the gap between the economic performance of developed and emerging markets would widen, with GDP growth of emerging markets projected at 6.5 per cent compared to 8.1 per cent in 2010, and developed world GDP at 1.6 per cent compared to 2.2 per cent in 2010.

“Investors will need to take a much more dynamic approach to their investment strategies in the more turbulent and divergent financial market conditions we predict in 2011,” said ING IM global head of strategy and tactical asset allocation, Eric Siegloff. “This means a greater focus on growth, and in particular dividends, income and yield — or what we call ‘DIY’.”

He asserted that the high degree of uncertainty would require that investors have better risk management and a ‘total return’ approach instead of focusing on benchmarks.

However, the story in Australia was more positive because it was set to benefit from its major trading partners experiencing the fastest pace of growth in 20 years, ING IN stated, which would boost demand for commodities and drive Australia’s terms of trade.