Passive investors would benefit from reducing their exposure to property and low-growth large-caps.
That is the central point of a new white paper published by Montgomery Investment Management warning investors in property and stocks of the looming threat of inferior returns.
Instead, the investment firm suggests it might be time for passive equity and property investors to consider increasing exposure to high quality small and mid-cap companies or managed funds that are "obsessed with long-term quality growth."
"High quality companies have been smashed in today's market presenting a rare opportunity. Meanwhile investors are concentrating their investments in over-priced, over-geared apartments and large cap stocks with little or no growth," the white paper states.
Montgomery cites the downturn in Perth as a potential indicator of what's to come on the east coast, saying that Australia's leveraged property investors might soon face something grimmer than they would like to believe.
"Property investors should be particularly concerned about the combination of record prices and record debt because the co-existence of these two factors has previously preceded crises," reads Montgomery's paper.
"Australia residential real estate is some of the most expensive in the world on a house price-to- income ratio basis and yet supply is increasing rapidly further into oversupply. These two conditions simply cannot coexist for long. As iron ore bulls learned a few years ago, record forthcoming supply is the death knell to record prices."
Montgomery also points to the healthcare sector as a future goldmine for investors, saying there are few industries in Australia with as obviously bright prospects.
"An ageing population, as well as a generation of baby boomers who took up aerobics and jogging for the first time, almost ensures a growing conga-line of hospital visits, also known as 'separations' and elective surgeries," the report states.
"And while the quarterly numbers show variability, the trend over the last two decades is clear and uninterrupted. When the market treats that which is temporary as permanent, investors have the opportunity to make outsized gains over the long run."