“Asset prices are being distorted by highly accommodative monetary policy, including extremely low interest rates and bond purchases by central banks in the US, Europe and Japan,” Mr Doherty said.

“The resulting fall in interest rates now sees the value of debt with sub-zero yields, guaranteeing a loss to investors holding to maturity, reach $US14 trillion internationally. Given economic conditions have not collapsed, investors have been encouraged to purchase riskier assets like equities and credit.”

Mr Doherty added that while government spending globally was likely to prevent a recession, growth was unlikely to shoot the lights out in 2020.

“Fiscal policy is supportive in China, Europe and Japan, but there is little impetus for governments to lift spending by the degree required to bring about a sharper upswing,” he said.

“Few signs point to a global recession in the near term. Yet it is unlikely that global growth will soon get out of the slow lane. High debt levels, ageing populations, technological disruption and climate change each meaningfully obstruct faster growth.”

Mr Doherty said given the degree to which asset prices had been distorted by low interest rates, the firm was positioning themselves cautiously in the equities space and encouraged investors to do the same.

“Investors should be aware of the increased financial vulnerabilities associated with the present extraordinary monetary policy settings. Central banks have less firepower to fight the next downturn,” he said. 

“In the meantime, the debt cycle is likely to last longer. Inefficient companies that would not otherwise have access to debt markets are able to survive longer. There are likely to be terrible collapses once interest rates climb once more, especially when coupled with a downturn in demand.

“Now is the time for investors to have even greater focus on quality and selected diversification. For our direct equity holdings, we are looking for companies with a competitive edge within their respective industries and are seeking opportunities in out-of-favour value stocks.”