Passive money will become dead money this decade, according to Orbis Investments
History suggests that the real returns of index investing could approach zero over the next decade, Orbis investment specialist Eric Marais says.
The $700 billion boom in Australian index funds may face mounting pressure over the next decade, with Orbis Investment Management predicting a downmarket that could upend the advantages of passive investing.
Investment specialist Eric Marais believes history and current market exuberance spell trouble for investors who rely on a ‘set and forget’ approach to their portfolios.
“Based on our analysis starting [from] 1970 of a broad range of valuation metrics and how those corresponded with forward-looking 10-year returns, current valuations could suggest around zero percent real returns (after inflation) over the next decade,” Marais told Capital Brief.
He attributes this outlook to stretched valuations and price multiples, which he says signal a market at its peak. With 12-month returns sitting at approximately 33% for the S&P 500 and 20% for the ASX 200, Marais believes the current market is unsustainable and likely to revert to the mean.
