The world economy is undergoing a restructuring: secular growth drivers are reshaping the balance of economic power; the demographics of longevity and aging populations are intensifying the retirement saving imperative; while the financial risk environment has been transformed by the 2008 credit crisis and ongoing sovereign debt crisis.
The search for income – already a powerful investment theme – is set to grow in importance over the next decade and beyond. There are a range of near-term and longer-term drivers:
- low interest rates and bond yields are driving a broader search for yield
- slower economic growth in many developed nations burdened with high debt levels is likely to put greater emphasis on income returns versus capital gains
- two large corrections in stock markets in 10 years have deflated sentiment towards equities, forcing investors to reassess their strategies
- the funding challenges facing governments hamstrung with public debts is likely to lead to responsibility for retirement saving increasingly falling on individuals
- aging populations with people living longer will increase retirement saving
- the need to maintain or grow real income levels during retirement to protect the purchasing power of savings from inflation will support investment in real, income-paying assets.
The investing environment of tomorrow is set to be quite different to the one which investors became accustomed to in the last 25 years.
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