The equity market looks set to continue to be one of the best investment opportunities for captive managers going forward, according to a top bank’s wealth manager.Henk Potts, director of global investment strategy at Barclays Wealth, who was in Bermuda this week taking part in a panel discussion on investment options for captives and market outlook at the Bermuda Captive Conference held at the Fairmont Southampton yesterday, said that historically equities had outperformed all other asset classes and the growth prospects looked good for the future.Mr Potts, who was joined on the panel by Lisa Coleman, managing director and head of global investment grade corporate credit team at JP Morgan Asset Management, and Michael Fleming, senior investment analyst at Vanguard, as well as moderator David Ezekiel, chairman and managing director, Marsh IAS Management Services (Bermuda) Ltd, predicted that the Standard & Poor’s 500 Index would be up more than 10 percent by the end of 2011 at 1,450, with GDP growth projections of 3.6 percent in the US and two percent in Europe.“Over a long period of time equities have certainly been the strongest performer, outperforming the other asset classes,” he said.“For example, in 1899 if you invested £100 in cash you would have made £20,000, in bonds £27,000 and equities £1.7 million.”Pointing to the corporate earnings season, he said that most companies had exceeded market expectations and businesses were much leaner than before as a result.Adding that on average firms’ profits had grown by 30 percent in 2010 and by 15 percent so far this year and were expected to rise by a further 10 to 15 percent in 2012, Mr Potts said that companies were also cash rich with an increased level of share buy back programmes and dividends being made, while mergers and acquisitions (M&A) activity would drive the equity market.Among the opportunities available, he viewed the emerging markets as an attractive proposition, in particular China, Taiwan and Korea, given they had returned three times more than the developed markets with a shift from five percent of the equity market in 2000 to 13 percent today.“We certainly believe that there is a strong case for emerging markets in the equity portfolio and there are some exciting opportunities there,” he said.But equally Mr Potts believes that there were a number of opportunities in terms of undervaluations in the developed markets, particularly in the US, and to a lesser extent in Europe, despite the tough economic conditions, in places such as Germany where exports were doing well, while new avenues would open up from the reconstruction of Japan in the wake of the tsunami and earthquake that devastated the country earlier this year. However, he added that any growth in the UK would be limited in the new austerity measures introduced by the government.In terms of specific types of investment, Mr Potts said that energy and IT would remain the stronger performers, while he was more cautious about the defensive stocks such as telecoms and utilities.“For a balanced portfolio the key message is that cash is about liquidity, bonds are your insurance and growth should be generated from the equity side of your portfolio,” he said.The discussion was prefaced by an overview of the captive industry by Mr Ezekiel who said that there was now a much greater emphasis on managing the liability side of the balance sheet rather than the assets, but it was important to focus on the investments with a strong board and committee in place in order to make the big decisions.He said that the key was asset allocation and choosing the right investment manager, with the majority of boards spending most of their time on the selection process, while any company worth its salt should have a written investment strategy it sticks to through thick and thin.“Now there is an unprecedented opportunity for investment managers because there are a lot of assets sitting around really doing nothing and captives paying banks to hold their cash in money market funds,” he said.“So there is a tremendous opportunity for people in the equity and fixed income business to put solutions as to how to put their money to the best use in front of captive owners that will meet their needs.“Before 2008 a typical portfolio might have been 75 percent fixed income, 20 percent equities and five percent alternatives, but now it is more like 85 percent fixed income if you include cash investments.“A lot of people have simply exited the equity field having bought high and sold low and they are not sure when or even if they will get back in again - for an investment strategy to work you have got to be consistent and stay in the market and be disciplined on both ends.”