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“These Difficult Investment Conditions Can Stretch For The Next 10 Years”

The words in the title of this article are an exact quote from Lim Chow Kiat, the deputy group president and group chief investment officer of GIC, one of Singapore’s sovereign wealth funds.

GIC manages over S$460 billion worth of assets that are located around the globe and is estimated to be the world’s eighth largest sovereign wealth fund. Lim’s statement came in late July after the fund reported a dip in its 20-year annualised real rate of return from 4.9% in fiscal 2015 (fiscal year ended 31 March 2015) to just 4% in fiscal 2016.

Lim also warned of more volatility ahead in the markets and cautioned that investment prospects are no longer as good today compared to the period from the 1980s to the 2000s.

Since the global financial crisis erupted in 2008, many countries have pushed their benchmark interest rates down significantly. Some regions, such as Europe for instance, are already experiencing a real negative interest rate environment. This has caused many investors who are hunting for yields to push up asset prices all over the world.

With investors now settling for lower yields, it would be more difficult to find outsized returns in current market conditions. And, Lim has hinted that such a low-return environment might continue for the next decade.

That’s not encouraging words to hear at all from one of the world’s largest investment funds. So, how should we as investors prepare ourselves for the “difficult investment conditions” ahead? That’s a question that is likely to generate as many answers as people you ask. Let’s look at what GIC has been doing instead.

The sovereign wealth fund has been allocating more of its portfolio toward bonds and cash in order to safeguard its assets against volatility in the market. GIC also mentioned that it is looking at more bottom-up opportunities, based on the merits of individual companies, rather than make investments in a top-down manner based on general investment themes.

As of March 2016, GIC has a 34% exposure to the United States, 20% exposure to Asia ex Japan, and an 11% exposure to Japan itself. This makes the United States and the whole of Asia very important markets for the fund. In Singapore, companies that GIC has a stake in include Global Logistic Properties Ltd (SGX: MC0).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.