Low interest rates mean investors will find good equity returns but mainly in the less liquid areas of the stock market, Jim McCaughan, chief executive officer of Principal Global Investors, said at FundForum.
Speaking to Funds Europe, he said the economic context should provide a good hunting ground for active managers in less liquid equities and that liquid large-caps were “not a good place for the active manager”.
Technology is behind the trend for lower rates, which McCaughan described as being “semi-permanent”, because in his view technology is having a deflationary impact, driving prices down and productivity up.
McCaughan also spoke about income products, saying assets that may provide income include real estate and real estate investment trusts, as well as equities. There is also an interest in the high yield bond sector for this, and though some firms prefer European high yield to US, Principal is not one of them, said McCaughan, because slower growth in Europe heightens default risk.
He is also not convinced that China is healthy enough to provide decent returns. While the official government debt-to-GDP ratio is thought to be around 30-40%, when corporate debt is added, much of which is from state-owned enterprises, this adds another 100% to that statistic.
While interested in China opening its sovereign debt markets up to foreign investors, the flight of capital from China is also a worrisome element to the country’s viability as a choice to invest in.
Nicholas Lyster, Principal’s Europe CEO, is more interested in India. “We’ve found the Indian market rewarding, it’s a good stock picking market,” he said, although he added that the history of the market is somewhat “hairy”.
Principal Global Investors manages about $341 billion ($300 billion) in assets under management.
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