LUXEMBOURG Equities face a bleak future and will no longer be the main choice for long-term investors after their recent collapse, a leading hedge fund specialist said on Tuesday.
Ken Kinsey-Quick, head of multi manager at Thames River Capital, told the Reuters Funds Summit in Luxembourg that there are huge headwinds against equities that will not soon die down.
"Equities will not reach their 2007 high for another 10 or 20 years," he predicted.
The gist of his argument is first, that when the world comes out of its current recession there will be a period of low growth, bringing with it lower returns from companies.
These companies will also need to raise money from places other than banks and are therefore likely to have to go to market, watering down the value of their stocks with rights issues.
Overall, however, Kinsey-Quick believes that the philosophy of long-term investment growth from equities has been dealt a hefty blow by the recent collapse.
"Something that hasn't really been priced in (is) a massive secular shift out of equities by all participants," he said.
The 2007-to-present falls in equities have essentially wiped out 10 years of gains for long-term investors, he said. This undermines the argument that stocks are what long-term investors should hold.
Money will still be made out of stock markets, he said, but it will not be by the traditional buy and hold strategy.
"You are going to have to be more of a trader to make money," Kinsey-Quick said.
CREDIT AND NICHE
Kinsey-Quick said credit was the most obvious area for growth at the moment.
"You can't get any income on cash deposits. If anything government bonds are probably the next bubble," he said.
"If you have to take risk, where are you going to go? Start at the top of the capital structure, investment grade corporate bonds."
Within the hedge fund universe, he said macro managers were set to have a rewarding time because "loose monetary and fiscal environments are really where they shine." He is also looking to buy into hedge funds that are developing niche products such as carbon markets, shipping, insurance risk and electricity trading.