Investors can expect some healthy returns despite 'muted outlook'

Investment funds are expected to deliver good returns over the coming year, despite rising inflation and interest rates.

Global equities rallied throughout 2021, delivering more than 10 percent growth in each of the past three years, although New Zealand equities and bonds underperformed.

ANZ Investments chief investment officer Paul Huxford said funds should deliver growth, but at a slower rate than last year, which reflected a bounce back from 2020's recession.

"From an investment perspective, despite a relatively muted outlook for domestic equities, there remain a number of quality companies that can continue to adapt and thrive

in this ever-changing environment," he said.

"Within a New Zealand context there are a number of really strong companies that we like at the moment - Mainfreight, Freightways and a number of the smaller ones will do quite well."

He said companies sensitive to interest rate hikes, such as utilities, will be challenged.

As an active fund manager, Huxford said ANZ Investments was selective in picking out companies most likely to outperform passive funds.

"It's just a matter of sifting and finding those companies that have a degree of pricing power and (can) weather this period of time well."

However, there were plenty of risks to navigate. As an example, the combination of rising interest rates and inflation could lead to more cautious consumer behaviour and slow the demand for goods and services.

High levels of sickness associated with the pandemic posed a risk to the availability of labour.

Covid-19 restrictions in China were likely to continue to disrupt global supply chains.

Huxford expected demand for investments aligned with sustainable and ethical goals would continue to increase.

"Interest from investors will grow as they demand both accountability and transparency of company targets and their progress towards climate-related goals and reducing carbon emissions."