Investors take notice, the era of set-and-forget stockpicking is over

The smart money says Donald Trump’s protectionist policies have shattered a well-worn investing strategy.

The tailwind of people being prepared to pay more for the same asset has probably come to an end, according to Talaria Capital’s Hugh Selby-Smith. Picture: AFP

The set-and-forget investment strategy that has served investors reliably well over the past three decades will not succeed in a world backing away from globalisation, translating to lower returns for a buy-and-hold mindset.

That’s the view of leading fund managers who say the push hastened by Donald Trump’s protectionist policies has shattered the tried and true investing trope.

“Real estate, high-yield credit and equities have all just gotten more expensive over the last 30 years but the preconditions that allowed that to occur are not in place anymore,” Talaria Capital’s co-chief investment officer Hugh Selby-Smith told The Australian.

“There’s been times when equity markets have gone down 50 per cent or more over that 30-year journey, but as long as you could hold and continue to invest effectively, things just got more expensive. That tailwind of people being prepared to pay more for the same asset has probably come to an end,” he argued.

While this passivity has paid off, Mr Selby-Smith suggested active investors who are more sensitive to valuations will succeed.

Reversing globalisation “means the cost of finance won’t keep going down as fewer people will, ultimately, be buying US assets. And the trend of continued nominal cash flow growth relative to expectations is coming to an end because costs will go up. So nominal growth and the cost of capital are no longer diverging.

“At the very least we’re at slack tide here. Worse, we could be moving into a period where there’s a headwind to assets getting more and more expensive on a go-forward basis, and that really changes the return profile,” he said.

Markets were battered earlier this month as US President Trump announced country-specific tariffs that were much more severe than expected, igniting a trade war with China.

Trillions of dollars were wiped from sharemarkets as investors bet on the prospect of a global recession and higher inflation.

A pause on most reciprocal tariffs has injected some short-term composure into equity markets.

Mr Selby-Smith expects a US recession in the near term.

“You’ve got to have as your base case that there’ll be a recession. It’ll start in the US and it’s hard to see it not then having a knock-on effect globally.”

Talaria’s global equity fund complex ETF returned 5.54 per cent in the March quarter, with healthcare firms Roche and Johnson & Johnson, along with gold miner Newmont, the biggest contributors.

SG Hiscock portfolio manager Hamish Tadgell stopped short of predicting a recession but accepts investors are battling a global economic slowdown.

“All of this has added to the uncertainty, and we’re not going back to where we were. Certain sentiment and confidence indicators have moved down and it’s fair to say that that will result in some dent to growth.

“Whether that’s sufficient to see unemployment and activity levels move down to a level where it’s going to move into recession, I think it’s hard to call at the moment,” he said.

Unlike most investors averse to higher inflation, Mr Tadgell called out deflationary elements that could provide some protection.

“If energy prices continue to fall or if we get a big deflationary impulse out of China as a result of them looking to find other homes for exports, I think there’s a risk that inflation could be lower than maybe what some people fear. That gives central banks more flexibility in terms do what they can do,” he said, meaning interest rate cuts.

Recent volatility has compelled the fund manager to move “a little more defensive” in his high-conviction fund.

“(We’re favouring) monopolistic-type assets, with high barriers to entry, so telcos, essential services like waste management and aged care. And we still think data centres look interesting,” he said.

“Healthcare is defensive too but you have to be very careful around the tariff element.”

Mr Tadgell likes gold as a hedge against geopolitical and inflation risks, and owns gold miners.

Originally published as Investors take notice, the era of set-and-forget stockpicking is over