Philip Saunders is Co-Head of Multi-Asset and Co-Portfolio Manager of the Investec Diversified Growth Fund
As we move into the middle of the 2010s, what do we feel the world facing multi-asset managers looks like today?
Firstly, greater asset allocation flexibility is likely going to be necessary in the financial market world we currently find ourselves in. The global financial crisis has ushered in a degree of government and Central Bank market intervention that is unprecedented, leading to distortions in asset valuations which will eventually have to be unwound.
This is probably most evident in bond markets. If, after a 33 year secular bull market cycle, developed bond markets have made their secular low points in yields, their role as defensive and diversifying components within portfolios may well be compromised. This flips conventional portfolio construction theory on its head.
Secondly, the capacity within multi-asset teams to see the world from the 'bottom-up' across multiple global asset classes, rather than rely on traditional macro dominated 'top-down' approaches, is likely to be critically important in meeting investor objectives. This is a world that will favour large well-organised teams with the ability to analyse and understand portfolios from top to bottom, owning every single allocation, with the tools to 'do the job' and the scale to deliver cost effective solutions to investors.
Finally, greater precision and discrimination around expressing a view should result in more robust structural diversification in portfolios, as well as more effective risk and reward trade-offs. The ability to hand-pick individual positions, express relative preferences or to build a bespoke basket of stocks is likely to be increasingly important in the world of modest returns. A focus on asset class behaviours, as opposed to labels, is also, we believe, critical in achieving robust diversification.
We are potentially at a fork in the road, meaning investors and their advisors are left with the choice about what type of multi-asset funds should form the foundations of their portfolios for the future. These, we feel, will have to have demonstrated an ability to pro-actively manage risk and deliver returns at reasonable costs.
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