It follows a 2014 in which returns halved from the previous year, when all the major developed equity indices had enjoyed a very decent movement upward of at least 20 per cent.
Performance of indices over 2yrs
Source: FE Analytics
However following this recent leaner year, returns from both bond and equity markets will continue to move lower throughout 2015, according to two well-known figures in the financial world – Janus Capital’s Bill Gross and JP Morgan’s chief market strategist Stephanie Flanders (pictured).
Gross, who made the high profile move from Pimco last year where he ran the world’s largest bond fund, in fact believes most asset classes will lose their investors money this year.
“When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over,” Gross said.
“With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.”
The bearish sentiment stems from the manager’s belief that the year will see an end to a three-decade-long bull run in bond markets.
“Debt super-cycles in the process of reversal are not favourable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable ‘Ides’ sometime during the next 12 months.”
“Be cautious and content with low positive returns in 2015. The time for risk taking has passed,” he added.
“Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don’t do it.”
“The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell.”
“Nevertheless, there comes a time when common sense must recognise that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns.”
Stephanie Flanders, meanwhile, was more subdued in her language but in clear agreement that investors should expect less from 2015 than 2014.
“Last year’s moderate return will become even more moderate this year,” Flanders said.
However she says the macro and policy environment is still supportive for equities over the longer term, especially in the US.
“Some would look and say the US is fairly valued or even expensive but the environment is still supportive and we expect to see consumption led growth over the next year, plenty of room for returns from US equities,” she explained.
“However, when it starts to look like the US is the only game in town it is important to remember there is still some upside risk in US markets and I don’t see that changing.”
“It will become harder to balance risk and reward in fixed income this year and – arguably - there is less room for error with yields so low. We will see a slight improvement in Europe but a slight slowing in the US and UK economy.”
Gross stakes his more severe warning on a belief that over the past few decades the market has favoured the upside, with rapid credit growth, lower interest rates and tighter risk spreads dominating the long-term trend and making a bubble set to burst.
“There have been dramatic reversals as with the Lehman Brothers collapse, the Asia/dot-com crisis around the turn of the century, and of course 1987’s one-day crash, but each reversal was met with a new and increasingly innovative monetary policy initiative on the part of the central banks that kept the bull market in asset prices alive,” Gross said.
“If real growth in most developed and highly levered economies cannot be normalised with monetary policy at the zero bound, then investors will ultimately seek alternative havens.”
“Not immediately, but at the margin, credit and assets are exchanged for figurative and sometimes literal money in a mattress. As it does, the system de-levers, as cash at the core or real assets at the exterior become the more desirable holding.”
However, as apocalyptic as it sounds Gross does see some opportunities in the fixed income space.
“What to consider in such a strange new world? High-quality assets with stable cash flows. Those would include treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically.”