Future Returns: Resetting Investment Expectations for 2022
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,656,430 (+0.65%)       Melbourne $994,677 (+0.27%)       Brisbane $978,777 (+0.15%)       Adelaide $878,311 (-0.89%)       Perth $857,374 (-0.27%)       Hobart $742,122 (-0.64%)       Darwin $666,990 (-0.54%)       Canberra $987,062 (-0.84%)       National $1,052,287 (+0.12%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $750,216 (+0.60%)       Melbourne $492,069 (-0.93%)       Brisbane $539,184 (+0.19%)       Adelaide $444,416 (-2.21%)       Perth $457,888 (+0.17%)       Hobart $527,154 (-0.12%)       Darwin $344,216 (+0.22%)       Canberra $504,424 (-0.33%)       National $530,515 (-0.07%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,120 (-121)       Melbourne 15,095 (-40)       Brisbane 7,990 (0)       Adelaide 2,438 (+11)       Perth 6,327 (-40)       Hobart 1,294 (-21)       Darwin 238 (+1)       Canberra 1,020 (+13)       National 44,522 (-197)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,780 (+4)       Melbourne 8,222 (-18)       Brisbane 1,619 (+1)       Adelaide 396 (-4)       Perth 1,599 (+9)       Hobart 213 (+10)       Darwin 400 (-6)       Canberra 1,003 (-24)       National 22,232 (-28)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $820 (+$20)       Melbourne $610 (+$10)       Brisbane $640 (+$3)       Adelaide $610 (+$10)       Perth $670 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $680 (-$10)       National $669 (+$5)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $775 (+$15)       Melbourne $550 ($0)       Brisbane $630 (-$20)       Adelaide $500 (+$5)       Perth $628 (+$8)       Hobart $450 ($0)       Darwin $500 (-$15)       Canberra $570 ($0)       National $591 (+$)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,426 (-22)       Melbourne 5,783 (+92)       Brisbane 4,042 (+149)       Adelaide 1,399 (+12)       Perth 2,345 (+25)       Hobart 383 (-2)       Darwin 94 (-10)       Canberra 595 (-9)       National 20,067 (+235)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 8,835 (+301)       Melbourne 4,537 (+107)       Brisbane 2,209 (+57)       Adelaide 391 (-8)       Perth 741 (-7)       Hobart 137 (+5)       Darwin 152 (-14)       Canberra 612 (+17)       National 17,614 (+458)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.57% (↑)      Melbourne 3.19% (↑)      Brisbane 3.40% (↑)      Adelaide 3.61% (↑)      Perth 4.06% (↑)      Hobart 3.85% (↑)      Darwin 5.46% (↑)        Canberra 3.58% (↓)     National 3.30% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.37% (↑)      Melbourne 5.81% (↑)        Brisbane 6.08% (↓)     Adelaide 5.85% (↑)      Perth 7.13% (↑)      Hobart 4.44% (↑)        Darwin 7.55% (↓)     Canberra 5.88% (↑)      National 5.80% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)      Hobart 1.4% (↑)      Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND         Sydney 30.3 (↓)       Melbourne 31.5 (↓)       Brisbane 31.7 (↓)       Adelaide 25.7 (↓)       Perth 35.4 (↓)     Hobart 33.7 (↑)      Darwin 36.2 (↑)        Canberra 32.0 (↓)     National 32.1 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND         Sydney 31.3 (↓)       Melbourne 31.9 (↓)       Brisbane 32.1 (↓)       Adelaide 24.8 (↓)       Perth 38.7 (↓)       Hobart 37.6 (↓)     Darwin 46.5 (↑)        Canberra 39.2 (↓)     National 35.3 (↑)            
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Future Returns: Resetting Investment Expectations for 2022

What to expect from the year ahead.

By Abby Schulz
Wed, Jan 12, 2022 12:20pmGrey Clock 4 min

While economies across the world are strong, lofty valuations for public companies and the likelihood of interest-rate hikes mean investors are resetting their expectations for returns.

“This next phase of the economic cycle is definitely going to be slower than the record-breaking rally and pivot in the cycle that we saw over the last two years,” says Amanda Agati, chief investment officer for PNC Financial Services Asset Management Group. “We think it’s going to be a much tougher slog.”

Keep in mind, this more challenging outlook comes after a year when the S&P 500 index rose nearly 27%, capping a three-year period when the broad-market index was up more than 90%, according to Dow Jones Market Data.

For 2022, the S&P 500 is projected to gain 9%, which in a non-pandemic environment would certainly be considered a “home run for large-cap domestic equities,” Agati says. But relative to the last three years, it’s certainly lower.

When it comes to public debt, PNC is even more cautious. While the bank expects a “lower-for-longer” interest-rate environment to persist for the next several years, its economists do expect rates to move higher globally in 2022, putting price pressure on most categories of bonds.

In its 10-year forecast, PNC predicts the Bloomberg U.S. Aggregate Bond Index of intermediate-term corporate and government bonds will return 2.3% annually, while the Bloomberg Global Aggregate ex-U.S. Markets Index will return 2%.

The bright star for PNC across the “multi-asset universe,” Agati says, is alternative investments—private equity, private debt, and venture capital. “There are a lot more opportunities [in alternatives] for meaningfully additive returns relative to public markets going forward,” she says.

Penta recently spoke about these opportunities with Agati, who is responsible for the investment policies guiding PNC Private Bank and PNC Private Bank Hawthorn, which works with family offices. She also guides the investment policies for PNC Institutional Asset Management.

‘Innovation and Growth’ 

In a slower-growing world, Agati says investors are focusing on companies offering innovation and growth, “and they’re willing to pay up for it to a degree,” she says. They will find most of these opportunities are in private markets.

While nothing is “table-pounding cheap,” even in private equity, the return expectations are higher, mainly because of the premium investors receive by agreeing to lock up their money for longer. Private-equity funds typically have fixed terms of 10 years.

Investing in private equity, however, is a multi-year process, as the strongest portfolios are diversified collections of funds with different vintage years, meaning the date the funds begin to put capital to work. “Each vintage year is unique and diverse relative to the others,” Agati says.

Private-equity funds investing in 2022, for instance, are likely to be shaped by an increase in mergers and acquisitions, buyouts, and special-purpose companies fueled by “still unprecedented fiscal and monetary support,” the bank wrote in a first-quarter investment strategy report.

Funds investing this year also will be working against a backdrop of heightened stock market volatility and uneven economic growth—both of which could create pockets of opportunity.

“The ballast that private-investment strategies can bring in particularly volatile times—not being beholden to quarterly earnings calls and the drivers around updating guidance in an uncertain backdrop—can provide comfort in portfolios,” Agati says.

Life Sciences, Technology, and Crypto

For 2022, private equity themes worth accessing include life sciences, technology, and cryptocurrency.

Life sciences are a “real area of innovation and investment” that has been catalyzed by the pandemic. In technology more broadly, there’s a boom in innovation particularly related to the metaverse, or the creation of virtual worlds.

“The tech [sector] has really been able to use the pandemic to its advantage, pulling away from the pack, and continuing to invest and allocate capital and drive innovation,” Agati says.

More entrepreneurs this year also are likely to harness blockchain technology to develop new companies and products, opportunities that will likely be made available through venture-capital funds. This “could be a very interesting vintage year for some of those exposures to take hold,” she says.

Another theme that isn’t necessarily specific to 2022 as a vintage year is impact investing in local communities. “There’s this real homegrown feeling of responsibility and duty for those who are impact-oriented or responsible investing-oriented to try to find a way to have the impact in their own backyard,” Agati says.

Finding Opportunities in Fixed-Income

One potentially bright spot in public debt is emerging markets, which are driven by variables outside of U.S. Federal Reserve policy. PNC expects the Bloomberg Emerging Markets Aggregate bond index to return 6.2% annually over the next 10 years.

That is partly because of current valuation levels, but also because PNC expects low rates globally will drive demand for emerging-market debt. Also, lofty levels for commodities exported from emerging markets have made government balance sheets in many of these countries stronger, according to the 2022 outlook.

“The growth outlook for emerging markets in general is one of the brightest in the multi-asset universe,” Agati says.

Because individual countries could experience unexpected tensions or shocks, PNC recommends investors consider investing in this sector through actively managed funds. It’s definitely a place “where astute active managers can add value to tilt toward or away from benchmark exposures,” she says.

Wealthy investors also can consider private debt funds, which invest in below-investment-grade loans, mezzanine funding, and distressed or special situation funds, according to PNC. That’s because the drivers for privately issued debt are not as closely tied to the movement in interest rates as in public markets, Agati says.

That means the cost of capital for borrowers in private markets is relatively low, providing more runway for deal-making. “Even though parts of the private market cycle and the economic cycle are further along from the bottom of the pandemic, we don’t think the private debt cycle is there,” Agati says. “It just creates a more interesting opportunity for investors.”

But as with emerging market debt, investing in private debt is enhanced by active managers. That’s in part because managers can re-price their investments quickly in response to changing conditions.

According to PNC, “allocations to private debt may be among the first to benefit from opportunities that arise among rapidly growing industries looking for new sources of capital.”



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Global economic growth is becoming more broad based, with surveys indicating that business activity in both the U.S. and the eurozone gained momentum in May.

The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia’s invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

By contrast, the U.S. economy expanded strongly over the same period, opening up an unusually wide growth gap with the eurozone. That gap narrowed as the eurozone returned to growth in the first three months of the year, while the U.S. slowed.

However, surveys released Thursday point to a fresh acceleration in the U.S., even as growth in the eurozone strengthened. That bodes well for a global economy that relied heavily on the U.S. for its dynamism in 2023.

The S&P Global Flash U.S. Composite PMI —which gauges activity in the manufacturing and services sectors—rose to 54.4 in May from 51.3 in April, marking a 25-month high and the first time since the beginning of the year that the index hasn’t slowed. A level over 50 indicates expansion in private-sector activity.

“The data put the U.S. economy back on course for another solid gross domestic product gain in the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone business activity in turn increased for the third straight month in May, and at the fastest pace in a year, the surveys suggest. The currency area’s joint composite PMI rose to 52.3 from 51.7.

The uptick was led by powerhouse economy Germany, where continued strength in services and improvement in industry drove activity to its highest level in a year. That helped the manufacturing sector in the bloc as a whole grow closer to recovery, reaching a 15-month peak.

By contrast, surveys of purchasing managers pointed to a slowdown in the U.K. economy following a stronger-than-expected start to the year that saw it outpace the U.S. The survey was released a day after Prime Minister Rishi Sunak called a surprise election for early July, banking on signs of an improved economic outlook to turn around a large deficit in the opinion polls.

Similar surveys pointed to a further acceleration in India’s rapidly-expanding economy, and to a rebound in Japan, where the economy contracted in the first three months of the year. In Australia, the surveys pointed to a slight slowdown in growth during May.

Businesses reported that they were raising their prices at the slowest pace since November, which should reassure the European Central Bank. However, the eurozone continued to add jobs in May, suggesting that wages might not cool as rapidly as the ECB had hoped.

The ECB released figures Thursday that showed wages negotiated by labor unions in the eurozone were 4.7% higher in the first quarter than a year earlier, a faster increase than the 4.5% recorded in the final three months of 2023

The ECB has signalled it will lower its key interest rate in early June, while the Fed is waiting for evidence that a slowdown in inflation will resume after setbacks this year.

Nevertheless, eurozone businesses and households shouldn’t bank on successive cuts to borrowing costs, ECB Vice President Luis de Guindos said. “There is a huge degree of uncertainty,” he said. “We have made no decisions on the number of interest rate cuts or on their size,” he said in an interview published Thursday. “We will see how economic data evolve.”

Continued resilience in the eurozone economy would likely make the ECB more cautious about lowering borrowing costs after its first move, economist Franziska Palmas at Capital Economics wrote in a note. “If the economy continues to hold up well, cuts further ahead may be slower than we had anticipated,” she said.

– Edward Frankl contributed to this story.

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