Grant Pearson

Whether the Democrat’s Kamala Harris (from the blue team) or the Republican’s Donald Trump (from the red team) becomes the next President of the United States, will likely have little or no impact on longer term investment returns, according to Insync Funds Management (Insync).

‘As it draws closer to the big day, media and financial commentators will go into overdrive tempting investors to pre-position their investments for a red or a blue team win,’ said Insync’s Head of Strategy and Distribution, Grant Pearson. ‘Politicians themselves will likely use fear and temptation to try to influence perceptions of how their actions, or those of their nemesis, might impact investment markets.’

But the evidence, as captured below, suggests investment returns will be similar when looking beyond immediate market reactions, regardless of the outcome of the election.

‘If we look at every US election result since President Roosevelt, and how markets actually behaved across each term, we can see that who wins and who loses the presidential race makes little difference to returns at all,’ Mr Pearson said.

Across the last 35 presidencies, Republicans presided over the most negative and most damaging investment return periods. They had 4 negative return rates, compared to 2 for the Democrats.

‘These six presidential terms, however, total a mere 17% of all government terms since before World War II,’ Mr Pearson said.

Positive terms amounted to about the same in number and magnitude, no matter which party won, and so too were the worst falls.

Insync’s Chief Investment Officer, Monik Kotecha, said there are times where a particular sector of the market may be favoured, or not, by a certain presidency.

‘We last witnessed that with Trump in 2016.  Aspects of the healthcare industry, for example, were negatively impacted for a short time by Trump’s unsuccessful attempt to repeal the Affordable Care Act,’ Mr Kotecha said. ‘While overall, politics don’t dictate broad market outcomes, the 2024 election does present the widest range of policy and investment outcomes I’ve seen in my 33 years of market observation.’

Mr Kotecha said this election will likely have more pronounced effects at specific industry and stock levels.

‘This is due to stark differences between the parties on key issues such as trade policy and its influence on the pace of de-globalization, energy policy impacting the oil and gas and renewables sector, and regulatory approaches across industries from financial services to technology.’

The key takeaway for investors, however, is that while US elections can create short-term volatility and impact specific sectors or stocks in election years, they rarely change the long-term trajectory of the overall market.

Mr Pearson said, ‘Traders beware. As for investors, they are best advised to focus on business fundamentals, have exposure across multiple sectors, and maintain a long-term view rather than letting election outcomes drive their investment decisions.’

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Insync CIO, Monik Kotecha, said Mr Byrne has more than 35 years’ experience managing all aspects of funds management operations at some of Australia’s leading investment firms.

‘I personally witnessed the breadth and depth of Conor’s extensive experience when we worked together at the same firm some years ago,’ he said. ‘His appointment will augment, enhance, and strengthen Insync’s operating capabilities.’

Mr Byrne’s experience spans risk management, compliance, finance, legal, human resources, IT, and back and middle office operations, across both listed and unlisted companies. He has held a range of leadership roles including COO, CFO, Board Director, and Chair.

‘We are delighted to have Conor join the Insync team,’ Mr Kotecha said.

Most recently, Mr Byrne was Chief Financial and Operating Officer of Associate Global Partners Limited (ASX:APL). He also served as Chair of Treasury Group for nine years, Director & Chief Operating Officer of Investors Mutual for eight years and Director, Fund Operations with UBS Global Asset Management for seven years.

To bolster its investment capabilities and continue its strong record of success that began in 2009, Insync has also appointed a further two analysts, effective June 2024, building the investment team to five.

‘Given rapid advancements in AI, the personal qualities and skill set required for this role are evolving, and will be crucial moving forward,’ Mr Kotecha said. ‘We have appointed analysts who we believe can successfully leverage AI’s developing capabilities.’

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‘You might say it is bigger than Ben Hur,’ Mr Kotecha said, ‘and shows no signs of being reined in or slowed down, in fact the reverse.’

Global data and business intelligence platform, Statista, reported that in 2024 the Video Games market worldwide is projected to reach revenues of US$282.30bn. The annual expected growth rate is 8.76% between 2024-2027, which would amount to $US363.20bn by 2027. This compares to 2024 global box office revenue projections of around $US41bn and around $US41bn for the digital music market.

Mr Kotecha said gaming offers a unique blend of entertainment, social interaction, and immersive experiences that other media forms can’t match.

‘Gaming is such a huge industry because it is part of a correspondingly huge gaming megatrend, which taps into two powerful super drivers – technological breakthroughs and demographic shifts,’ he said. ‘It is an almost perfect example of multiple megatrends converging, a unique confluence of technology, social change, and consumer behaviour.’

Gaming is at the cutting edge of both advanced technology, which requires ever more powerful processing chips, for example, and entertainment creativity, such as the advancements in augmented and virtual reality that add new dimensions to gaming experiences. ‘Artificial Intelligence (AI) also plays a crucial accelerating role, driving innovations in game design, personalisation, and the user experience,’ he said.

‘The social aspect of gaming has transformed it into a digital hangout space, further embedding it into the fabric of daily life. It’s common for groups of players from multiple backgrounds and countries to play the same game – live.’

Nintendo is an excellent example, with a history of over 120 years serving the gaming industry. Beginning with playing cards in Japan, it has developed into a global concern, valued at around $64Bn USD. It has sold 119M units of its iconic GameBoy, 100M Wii consoles, 920M Wii games and 122M Switch consoles. Nintendo also has theme parks and produces movies around its games and characters.

‘Nintendo generates half its overall profit from consoles,’ Mr Kotecha said. ‘Its peers are losing money on consoles in the hope that their games will compensate. Cleverly, however, Nintendo is not using leading edge technology but proven tech which comes at a far lower cost, giving it another big competitive edge. It has excellent financial and cash strength and takes a very long view in running its business.’

Demographically, younger generations, particularly those aged 13-17 (intersection of Gen Alphas and Gen Zers), are increasingly gravitating towards gaming, spending 40% more time in virtual worlds than in any other form of media.

‘As they age, the habits of these generations are likely to influence mainstream media consumption trends,’ Mr Kotecha said. ‘For example, as we have seen with Nintendo, there are now many blockbuster films created off the back of online games.’

The Gaming megatrend is not limited to the western world, or to young men. ‘Large developing economies like India and Mexico have gaming growth rates exceeding 30%. The appeal of gaming is also strong amongst women and those over 55,’ Mr Kotecha said. ‘This growth reflects a deep-seated shift in consumer preferences and behaviours.’

Companies in the sector are also well advanced in extracting further revenue opportunities from the information they gather and other cross-selling services beyond game subscriptions, making them attractive from an investment perspective.

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Grant Pearson

A White Paper (the Paper) published by Insync Funds Management (Insync) says the industry has taken at face value the argument that passive outperforms active, but a deeper dive indicates this is not necessarily so.

Insync’s Head of Strategy and Distribution, Grant Pearson, author of the Paper, points to 7 key factors in portfolio construction that demand full consideration before assuming the powerful marketing messages from index managers are relevant or correct.

1. Blending 2-3 active funds often does better than an index fund

If devised properly by trained professionals, 2-3 active funds blended often do better than an index fund. Most investors using active managed funds tend to use a composite of them with various weightings that also shift over time. Intermediated inputs of some form are present in a very large portion of all active funds under management (FUM), be it model portfolios or forms of advised recommendations.

‘This is a valuable layer of skill that impacts the reality for end investors,’ Mr Pearson said. ‘Excluding this fact infers that such inputs and professionals offer zero value to the outcome. However, the evidence suggests they do add value.’

2. Applying meaningful time-based measurements

‘Rolling Returns’ instead of commonly used ‘point-to-point’ returns provide investors with far more useful assessments of historical returns, as they better account for the average result across all start/end months of the year, thus aligning an investor’s likely return experience.

‘Index promoters and researchers have avoided using this superior measure of returns,’ Mr Pearson said.

3. Challenging the over-simplification of index comparisons

Using almost any month of ‘point-to-point’ returns, a cohort of 10-20% of active funds usually outperforms the relevant index fund. ‘This is especially so outside extreme frothy markets,’ Mr Pearson said.

4. Measure active returns, risk adjusted and in the hip-pocket

Active management is only accurately calculated at the investor’s dollar account level, not at the fund level because risk and volatility management are provided with active management, and this alters the $-based account balance.

‘Two funds can post the same return ‘point-to-point’ yet have very different account balances simply due to the volatility in each. How often, how far and for how long a fund drawdown is, impacts account balances,’ Mr Pearson said.

For retirees siphoning off income and capital this is essential knowledge. It’s all in the dollar-based arithmetic, but this can’t be captured at the fund level where marketing is focused. Index funds have no risk or volatility management. Thus, along with the all-important hip-pocket is the cost/benefit of risk management in active investments. Both are crucial considerations.’

5. Index comparisons rarely exclude companies with poor stewardship

Most active funds including non-ESG offers do have standards on this to various degrees.

‘If you care about good stewardship and basic common values, then this needs to be accounted for in comparisons,’ Mr Pearson said. ‘Investors do care by and large, but that doesn’t mean they necessarily want ESG focused funds. Governance matters but indexing is devoid of this.’

6. Poor index benchmark selection

Whole sectors of an index’s return are often pitted against a manager whose fund deliberately doesn’t invest in most of it (e.g. emerging markets and resources). An active mega cap global equity manager is often compared to an entire index (usually the MSCI-AWI) that’s mostly comprised of non-large cap stocks and also in countries they wouldn’t ever invest in. ‘One has to ask if this is even appropriate?’

7. The downsides of ‘dominated concentration’

The risk of concentrated investments, particularly in specific sectors or narrow asset classes, may not be adequately addressed by passive strategies. When a few large-cap stocks dominate an index, the overall index performance becomes highly sensitive to the performance of those stocks. If one or more of these stocks experience significant price declines, the entire index’s performance can be adversely affected.

‘Diversification is key in managing risk,’ Mr Pearson said. ‘Concentrated indices lack the benefits of diversification, which can help cushion the impact of poor performance from a few individual stocks. Diversified portfolios tend to exhibit lower volatility and more consistent returns.’

Mr Pearson said the Paper uncovers some of the dangers of assuming passive funds deliver better than active approaches, which include that it may rob investors of a better hip pocket result, that it doesn’t properly manage risks and that it undervalues and undermines the worth of professional skill and research.

‘Passive investment has a place but to nowhere near the extent it is currently being used in our industry, which is relying upon incorrect assumptions and omissions. We owe it to the end investor to look harder.’

Read the White Paper.

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Grant Pearson

A new app, ‘Threads’ built by Instagram, which enables the sharing of text updates and joining public conversations, recently reached 100 million users within an astonishing five days.

‘This is a powerful demonstration of the lightning speed at which innovation is accelerating,’ says Insync Funds Management (Insync)’s Head of Strategy and Distribution, Grant Pearson. ‘Make no mistake, the frantic pace of change now spells danger for investors.’

For context, Facebook took 4.5 years to reach 100 million users, Instagram took 2.5 years, TikTok achieved it in nine months, and Chat GPT took two months.

‘The reason this means big trouble for investors is that they could be in the right company today and, as little as weeks later, be in the wrong company,’ Mr Pearson says.

The pace of innovation does not just affect pure technology plays.

‘All companies could be affected as they all rely on technology of some sort,’ he says. ‘If their competition embraces new technology better and faster, a dominant company today may find its revenues and profits under immediate threat. And let’s not forget brand new competitors for firms that technology has opened the gates to.’

Mr Pearson says that while in the past investors had months or even years to discover an emerging technological breakthrough, assess it, seek views, and then act; now they have next to no time and the skills required to do it are often outside the investment industry.

‘In fact, the average life span of successful businesses is being compressed into less than 10 years duration,’ he went on to say. ‘This is disruption accelerating at the same time that timeframes are compressing.’

Annual increases in computing processing power are now many hundreds of times faster than previous computers which are themselves under five years old.

‘Look out further, say six years, and it’s even more profound,’ he says. ‘Google’s latest Sycamore Quantum Computer, testing now with operational status by 2029, is an astonishing 241 million times more powerful than today’s fastest supercomputers!’

In other words, Sycamore can solve in seconds a problem that takes today’s fastest supercomputer 47 years.

‘This first iteration of Sycamore is only the ‘Model T’ of what is to come,’ Mr Pearson says. ‘The alarming thing for the investment community is that we are only at the very beginning of this acceleration. It is akin to sitting in a rollercoaster as it has just tipped into its near vertical first run.’

Couple this extraordinary increase in power with the advances in AI and Mr Pearson says gargantuan change is afoot, change that will revolutionise our world and turn most industries upside down, along with investor returns.

‘Fund managers and researchers need to quickly create robust means to assess and counter the acceleration of technological change and shrinking timeframes, to reduce the threats to returns, as well as better understand which companies will deliver the decent performances of tomorrow,’ he says.

‘Our industry has a reputation for being slow to change, with egos routinely getting in the way of adapting. Investors need to check carefully that their fund managers are very clear as to how these factors impact their investment processes if they are not to be blindsided and saddled with disappointing returns.’

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‘We are heavily engaged in deep specialist research to gauge who will be empowered, what to avoid, and where the most significant value and differentiation lies,’ says Insync CIO, Monik Kotecha. ‘One key area of more immediate benefit is in data.’

RELX is one global company in the Insync portfolio that has a distinct data advantage, making it a major beneficiary of the acceleration of AI.

A global provider of information-based analytics and decision tools, RELX provides products that help researchers advance scientific knowledge across medical, legal, financial services and government industries and sectors.‘What RELX does so well is gather, analyse, and deliver valuable knowledge and insights to businesses and professionals across industries globally, empowering people and organisations to make better-informed decisions.’ Mr Kotecha said.

The company has been using machine learning natural language processing for well over a decade and has been experimenting with generative AI for over 18 months. It employs 10,000 technologists spending about $1.6 billion a year on technology alone.

‘Similar to one of our other holdings, Adobe, it possesses multiple gargantuan databases that result in reliable and trusted sources of data its customers can depend on,’ Mr Kotecha said.

‘Like all companies in our portfolio, both Adobe and RELX are highly profitable companies based on their Return On Invested Capital (ROIC), have a long runway of growth, modest levels of debt, substantial R&D, and are generating prodigious amounts of cash flow year after year,’ Mr Kotecha said.

‘While investors are fretting over when interest rates will peak, and the impact on both the economy and company earnings, a select group of companies often deliver excess relative returns versus the benchmark again and again,’ he said. ‘This is especially so during historical periods of monetary tightening and general gloomy headlines, such as we are experiencing today.’
 Results from such companies, even in the current environment, should not be surprising he said. ‘We find they often maintain and even strengthen their strong competitive advantages during challenging times, and this enables them to consistently generate economic value even as the cost of capital is rising.’

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However, negative macroeconomic and geopolitical commentary means the investment community risks losing sight of the fact that something much more exciting and profound is going on and will continue to go on.

Insync CEO, Monik Kotecha says, ‘Megatrends, such as those driven by technological change, for example, are rapidly and exponentially reshaping the world. So much so, that we are actually at a defining moment in history, which presents extraordinary investment opportunities.’

While slow to form, megatrends are extremely powerful waves of change. They significantly influence the future, possess an aura of inevitability, have a far and wide-reaching impact on society and are nearly impossible to reverse.

‘Companies riding a megatrend wave are largely impervious to market conditions,’ Mr Kotecha says, ‘So over-focussing on the macro and geopolitical environment may be counter-intuitive.’

He says opportunities for investment lie in companies that are riding a megatrend wave, are benefiting from it, and are also profitable, with debt-free or low-debt balance sheets, and above-average earnings growth.

‘Over the long term it is sustainable earnings growth that drives share prices,’ Mr Kotecha says. ‘The last two years proved that companies with these attributes that are also harnessing the power of a megatrend, have great resilience and strength. They not only survived but thrived, despite what can only be described as a stormy macro and geopolitical environment.’

Mr Kotecha says the recent significant surge in the share prices of artificial intelligence (AI) related companies is a good example of a megatrend at work. ‘Many of these companies are some of the most profitable in the world, with little or no debt on their balance sheets,’ he says. ‘Adobe is a case in point. The company has been riding a technological innovation wave for years, as evidenced by its long history of investing in artificial intelligence.’

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud.

‘Adobe has been leveraging its AI engine, Adobe Sensei, to power new AI features across its different product lines. Many of these new AI features, especially for Creative Cloud products, represent a potential paradigm shift in the day-to-day workflow of content creators. This has been significantly enhanced with the recent unveiling of their generative artificial intelligence services for creative professionals and marketers. They include Adobe Firefly, a new family of creative generative AI models focused initially on image generation and text effects.’

Mr Kotecha says large Global 1000 companies are highly constrained in their ability to create content for marketing and other purposes. Generative AI could significantly speed up content creation and Adobe is well-positioned because clients require trust in any content generation.

‘It is an extremely profitable business which is in a strong position to benefit from the exponential deployment of artificial intelligence,’ Mr Kotecha says.

More than 30% of Insync’s portfolio is exposed to the technological megatrend, either directly through companies that provide the processes to manufacture AI chips, what can be described as the ‘picks and shovels’, to companies providing the large language models (LLM) and machine learning models (MLM), through to software and analytics companies that are embedding these tools to accelerate their growth rates.

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Jackie Taranto

Insync Funds Management, a leader in investing in global megatrends, is excited to announce the formalisation of our research partnership with Paradigm Shift, a renowned team specialising in key technological shifts shaping the world today.

This strategic alliance, which began two years ago, has now taken a significant step forward with Paradigm Shift’s key members, Jackie Taranto and Gilad Grinbaum, operating directly from our offices.

Jackie Taranto, a seasoned business executive with over thirty years of experience, brings her expertise in technology, finance & investment, and more to our team. Jackie’s unique ability to foster business collaboration and extract economic value from technology and talent aligns with our forward-thinking approach. Her extensive network across various industries and countries will further enhance our global market insights.

Gilad Grinbaum, an impassioned strategist with over 15 years of experience in emerging technologies, complements Jackie’s expertise. Educated as an electrical, computer, and PV engineer, Gilad has worked in four continents focusing on paradigm-shifting tech, including crypto & blockchain, smart cities, and advanced manufacturing, to name a few. Gilad’s deep understanding of global trends and geopolitical developments will help shape our strategies and inform our investment decisions.

With the strengthening of our strategic alliance with Paradigm Shift, we are reinforcing our commitment to staying ahead of the curve and ensuring the best outcomes for our clients.

“While this move represents an evolution, our core investment philosophy and commitment to delivering optimal performance remain unaltered,” says Monik Kotecha, Chief Investment Officer. “This partnership strengthens our ability to navigate the rapidly evolving market landscape while adhering to our consistent and systematic investment process.”

At Insync, we are excited about the opportunities this partnership brings. We look forward to harnessing the insights and expertise of Jackie and Gilad as we continue to deliver exceptional results for our clients.

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Grant Pearson

The financial services industry is hooked on using ‘Point-to-Point’ returns to measure fund performance, despite the fact that they often mislead advisers and their clients, according to Insync Funds Management (Insync).

‘Point-to-Point returns are the wrong measure for fund performance, and yet they’re endemic,’ says Insync Strategy Head, Grant Pearson. ‘They undeservedly grab pole position across platform and media reporting, researcher tables and software, and even on websites and slide decks.’

Point-to-Point returns measure performance from a specific set date point, for a specific duration, for example, 1,3, 5,7 or even 10 years.

‘The trouble with Point-to-Point returns is that they are only valid if an investor is investing on a specific month for the exact specified duration. Point-to-Point returns mislead advisers and clients because they infer these returns are typical, when often they are not.’

Mr Pearson says it is common practice to then review results ending in calendar or financial years.

‘While this sounds right, these singular dates are not necessarily any more or less relevant than any other start/end month. Few investors buy funds on New Year’s Eve or on 1 July, and sell exactly 1,3,5, 7, or 10 years later.’

By way of example, he says an investment might drop by double digits in January, do reasonably well for the next 10 months, and have a lacklustre return for December.

‘The Point-to-Point result might thus infer the investment ‘performed poorly’. But if the Point-to-Point period started 1 February, and ended the following 31 January, it could have told a much better story,’ he says.

‘The truth is it may or may not be a good investment, but you can’t know unless you examine each single one-year period starting every month over a sufficiently comparable time period.’

Mr Pearson says Point-to-Point returns are dangerous used in isolation, or as the primary return measure, no matter the time frame. Using them for new funds that have only a few years under their belt are perhaps an exception.

‘We firmly believe Point-to-Point returns should only ever be used in ‘behind-the-scenes’ ways such as simple cross checking for extreme under/over performance, to check fund behaviour at certain points in the cycle or during a specific event – and then, only for shorter-term time frames and rarely for unsophisticated investors.’

According to Insync, the better way to measure returns is to examine them via ‘Rolling Returns’. This method calculates performance based on all months, not just January or July.

‘They more fully account for the fact that investors typically do not invest only in January or July but instead are investing and redeeming across all months. You can then calculate the average rolling returns over the time period in question.’

While not perfect, Rolling Returns offer a far more robust and more complete return assessment for advisers and their clients.

‘They are a more effective measure because they provide a more holistic picture of an investment’s returns,’ he says.

Crucially, the Rolling Return method allows an investor to evaluate the consistency of a fund’s performance over time, including the impact of ups and downs of events and market cycles, which is a more revealing test of a manager’s skill.

It also removes any possible ‘skewing’ of a measurement result. ‘Rolling returns provide a particularly robust analytical tool for evaluating managers during volatile periods. With rolling returns, you can’t simply shift the performance date range to paint a rosier picture,’ he says.

It’s also important to match the rolling period used to the time period the manager and asset class is focused upon. For Bonds it may be better to focus more upon 2 and 3 year rolling periods, for equities 5 and 7 years.

‘We also find it surprising and frustrating that the industry appears to pay scant attention to the written aims of each fund and how much trading they do, as this influences the buy/sell/hold calls managers make,’ Mr Pearson says.

Point-to Point measures often misrepresent the result. ‘Two managers can hold the same stock but with differing time frames in mind. This fact is lost in most analysis,’ he says. ‘Our industry owes it to advisers and their clients to get it right, so that they can make informed and appropriate investment decisions using better measurements.’

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John Lobb

According to Insync Funds Management (Insync) there is further evidence supporting many of the views it held back in its 2022 industry White Paper Will the second half and beyond for equities be different to the first?

In this White Paper, Insync said five common assertions had been stirring the pessimism pot, one of which was that the resumption of rising interest rates, and therefore inflation, is firmly established.

Insync Portfolio Manager John Lobb said, “We disagreed with those pessimistic assertions then, and in the face of further evidence, we still disagree.”

In August 2022, Insync said the incredible rate of money creation during 2020-2021 of 20% to 30% pa, had dramatically slowed to the average of the historic range of 5-6%. Excess money had been chasing an interrupted supply of goods and services up until last year, pushing up prices artificially.

“Today, the Money Supply (M2) rate of change is negative (-1.3%). This has not happened for at least 80 years,” Mr Lobb said. “This development would be of concern to the Federal Open Market Committee (FOMC), since productive investment relies heavily on the availability of credit.”

In 2022, Insync had also pointed out that inflation of the price of goods leaving the gates of Chinese factories, which had been running at 13-14%, had dropped back to 4%.

“The factory gate prices of Chinese manufacturing plants have now declined at -1.3% over the last year,” Mr Lobb said.

Additionally, he said that a decline in the net number of small to medium (SME) businesses looking to implement price hikes, also identified by Insync in August 2022, had continued to such an extent that SME pricing intentions in the next three months now match those prior to the pandemic.

Looking to carbon energy supplies, which was also touted as an ongoing inflationary pressure, the reverse has been true.

“It fell even further than we predicted,” Mr Lobb said.

“In more normal times, central banks largely ignore the ebb and flow of global energy and food prices. However, in today’s conditions where the labour force has contracted, rises in food and energy prices may strengthen the case for higher rates since pay demands could create a more sustained impulse to inflation.”

Mr Lobb said that fortunately, Natural Gas (MMBtu) has dropped 65% in less than six months, back to the same level as that during the previous four northern hemisphere winters

“Besides being used for heating, it’s a core determinant of fertiliser and thus food prices. Crude oil and therefore gasoline prices, have declined in excess of 20% to $78/barrel in the last six months. This is even below its price prior to the Russian invasion of Ukraine,” he said. “So, whilst the FOMC is usually more interested in CPI ex food and energy, they would appreciate how reductions in the prices of these non-discretionary goods has a positive indirect effect on wage demands in what is a tight labour market.”

Insync had asserted that inflation over the past few decades had been abnormally low, and they had expected it to settle around its longer-term norm, which is not bad for equity markets.

“This is exactly what it is heading towards. Five-year inflationary expectations are now congruent with the 5-10 year inflationary expectations (2.3%) which will calm the nerves of the FOMC,” Mr Lobb said.

“It has always been our view that long term inflation expectations will not revert to those of the recent abnormal past of around 2% due to a less (internationally) mobile labour force and a higher degree of onshoring. Nevertheless, the FOMC’s expectations will also be tempered by their assessment of the new global regime, mainly attributable to the re-evaluation of geopolitical risk by large corporates.”

Insync had also noted that looking at the core drivers of inflation it was hard to see price rises continuing as had been the case in the previous year and, if the prices of the core drivers of inflation stabilise, inflation would drop dramatically in this coming year.

“Even total weekly wages, a significant driver of ‘stickier’ service inflation, are now only growing at 3.5-3.75%, similar to the rate of growth that existed in 2019,” Mr Lobb said.

“As employees and managers become more accustomed to the increased prevalence of the hybrid work schedule, productivity should recover from the currently negative -1.7%, leading to an even greater improvement in unit labour costs (ULC). The Federal Reserve is keenly aware that ULC is the real culprit of endemic inflation.”

While Insync believes the global economy is unlikely to regain its ‘fluidity’, it also believes the central banks will feel more comfortable promoting a more neutral policy stance based on the above developments.

“Perhaps for those investors that hold a pessimistic view, it may be time to question this, to deploy assets towards those equites that are primed to deliver above average earnings growth in a mediocre at best, GDP environment,” Mr Lobb said.

Read the Whitepaper.

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