Asset consultant Towers Watson has developed a new investment index, designed to accurately forecast global growth based on six long-term themes that will fundamentally alter the way economies grow.
The Secular Growth Index has been constructed to influence how Towers Watson’s global investment committee determines its economic forecasts and portfolio construction.
The committee’s latest thematic secular outlook, released on Friday, predicts developed world growth is likely to be below its long-term trend, while deleveraging, weak demographics and the resolution of intergenerational inequity are likely to be significant drags on some nations.
Overall, a more volatile socioeconomic environment is likely to materialise, with competition for scarce resources, the impact of new technologies and rising intra-country inequality all contributing to significant social, political and economic change.
The global investment committee believes these factors will lead to more volatile economic outcomes and asset returns.
According to Tim Unger, head of investment strategy at Towers Watson in Australia, investors with long time horizons have no choice but to gauge how global growth rates will evolve so they can continually adapt in an increasingly transformative world.
Economies and businesses that manage and adjust to change the best will most likely outperform, he said.
“We suggest the best way of realising this competitive advantage is to overlay quantitative estimates with rigorous thematic analysis,” Unger said.
Towers Watson’s secular outlook builds on its research paper, We need a bigger boat, which lists six mega trends influencing economies and markets: economic imbalances, adverse demography, degradation of natural capital, innovation and technology, business connections and government.
The Secular Growth Index was developed based on Towers Watson’s belief that these mega trends and their impact should play a greater role in portfolio construction to exploit thematic winners and losers. It covers 25 countries and comes up with a range of both future growth and the likely impact on growth of the key thematic influences.
Read the Towers Watson Global Investment Committee Secular Outlook 2013 here.