Morningstar Magazine - August/September 2018 - 24

Dispatches

responsible, as they should be, for assessing
whether the conflict has been managed in the
client's best interest.
5 Relationship Disclosure The reform proposals

aim to ensure that investors are better
informed about what investments they'll have
access to, the services they can expect to
receive, and the impact of fees and commissions.
If there are limits on the scope of securities
offered, this should be spelled out. Most mutual
fund dealers, for example, don't offer
exchange-traded funds. Firms and advisors
would also be required to explain how any fees
or sales charges, including embedded
commissions, will reduce investment returns.
None of the proposed reforms will be taking effect
anytime soon. Industry stakeholders and other
interested parties have until Oct. 19 to comment,
and it will take many months for the regulators
to review the feedback and engage in
consultations. According to the regulators' own
timetable, implementation of most of the
reforms is two years away. What remains to be
seen is how closely the regulators and the
self-regulatory organizations for brokers and fund
dealers will monitor and enforce all the new
requirements. For that, it looks like we'll have to
wait until at least 2020.
Rudy Luukko is editor, investment and personal finance,
with Morningstar Canada.

U.S. Stock Market
Expected to Lag for
Next Decade

been strong, especially in the technology sector,
with U.S. investors further buoyed by
corporate tax rate cuts and solid earnings results.

GREATER EUROPE

United Kingdom
It's been an interesting time for global investment
markets. After a strong 2017 for many
growth assets, 2018 has seen a return to more
challenging conditions. A continued
upward path for interest rates in the United States,
combined with escalating trade tensions
and potential geopolitical threats, has resulted
in volatility not seen since early 2016.
In addition, we've faced ongoing Brexit negotiations and concerns over the political outlook
in Italy, which at its heart questions the
sustainability of the eurozone. This comes just
as the European Central Bank slows its
stimulus program, ensuring there is no shortage
of uncertainty for investors to navigate.
Against this backdrop, equity markets have,
nonetheless, managed to post impressive mediumterm returns. Emerging markets have borne
the brunt of the recent volatility yet have
still delivered double-digit gains over the last
12 months. Returns from Japanese and U.S.
equities over the past 12 months have also

Changes in interest-rate and inflation expectations
have generally resulted in much more muted
returns from key defensive assets like government
bonds and other interest-rate-sensitive
asset classes, including listed property and listed
infrastructure, with the latter experiencing
significant volatility.
We reiterate our perpetual message that it's
incredibly hard to know how economic
and political events around the world will play
out. We are especially skeptical of anyone
trying to position for these events in advance,
as such attempts rarely add value. The
bigger opportunity, to our way of thinking, is to
assess valuations in both equity and bond
markets in a world where investor sentiment
appears complacent.
Our analysis reveals disparate expected returns
across the investment universe, offering
an opportunity to reduce the risk of loss as
major markets return to what they are
worth, over time. It's difficult to predict the timing
and catalyst for any strength or weakness,
of course. While we are not forecasting some
imminent or catastrophic decline, we
recommend being prudently positioned and
fundamentally diversified.

So, Prepare Yourselves: 2°C, Here We Come!
Atmospheric CO₂ Concentration

Global Temperature Increase (Celsius)

480
PPM

2.0°
+1.9°

PROJECTION

430

1.5°

380

1.0°

330

0.5°
2016

280
1959

1969

1979

Source: DNV GL, NOAA. Data as of 09/30/2017.

24
26

Morningstar February/March 2018

1989

1999

2009

0.0°
2019E

2029E

2039E

Therefore, carbon emissions will continue to rise,
almost guaranteeing global temperatures
will increase 2 degrees Celsius by 2050. "We will
be fighting tooth and nail, with any luck
and carbon taxes and improved attitude, to keep
it below 3 degrees in 2100," Grantham said.

Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2018