Analysis: Investment sponges for a growth-saturated world

Wed Oct 31, 2012 3:46am EDT
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By Mike Dolan

LONDON (Reuters) - When paltry growth, systemic risk and resource scarcity are darkening the global horizon, investors must hunt shrewdly to find stocks resilient enough to ride out the storm.

Far from being cathartic, the past five years of credit crisis and the subsequent slow, painful debt paydown has merely nudged the world economy deeper into the dangers posed by dramatic population growth, aging in rich economies and shortages of natural resources and capital.

Whether you call it the "new normal" or an economic "perma-frost", the resulting consensus is for many more years of sub-par global growth and a vulnerability to shocks that the public at large and the institutions managing their savings are going to have to navigate deftly.

For some, such as bond fund PIMCO's boss Bill Gross, this heralds the death of the "cult of equity" as most firms struggle to boost revenues and profits in such a dour environment.

With bond returns at historical lows and converging rapidly to near zero rates on cash, there's little solace there too for savers even attempting to beat inflation over time. High-dividend blue chips or high-yield corporate bonds have been chased relentlessly over the past couple of years as a hybrid.

Yet some strategists and stock pickers now insist that work needs to intensify on finding innovative "new growth" firms with environmentally sustainable and efficient long-term strategies as well as high scores on governance and regulatory sensitivity.

The rise in recent years of investment models based on "socially responsible investment", SRI, or companies with high ratings on "environmental, social and governance" metrics, ESG, has met with mixed reviews.

But strategists at UK asset manager Schroders warn of dangers in ignoring the scale of population and environmental overload twinned with the demand suppressant of deleveraging and cash hoarding.   Continued...

A worker on IG Index's trading floor puts her hand to her face as she speaks on the phone while markets tumble, in London, September 22, 2011. REUTERS/Andrew Winning