Why now is the time for active management

Andrew, you’re talking about why now is the time for active management. What’s your thesis behind that?

Well look, we’ve had five years of terrific returns - in fact, six or seven - but the last five years, very solid returns, not just in NZ equities, but globally. And we reflect on why those returns have been so solid. About half the reason, in my opinion, has been the strong rallying bonds. Bond yields have fallen, interest rates have been very low, central banks have been effectively flooding the world with a lot of liquidity, so, as a result, equity valuations have risen by about 50%.For example, take the U.S. market. The Price-Earnings Ratio five years ago was 12. Now, it’s close to 18. That’s a 50% increase.

It’s been quite benign, and the markets and the returns have come reasonably easy. That’s changing now, isn’t it?

Yeah, I think half the returns, historically, have come from Australian bond yields and that has been the easy win for investment managers. Half has come from what I call active management, with returns from investing in companies. As we look forward, we don’t want to make any predictions as to where bond yields or interest rates are going, but I don’t think we have to, because it’s hard to imagine that you get another 50% increase in valuations from here.