Despite a stormy ride pre pandemic, Multi Asset strategies could offer investors attractive returns and diversification as the world moves beyond Covid-19. CAMRADATA’s latest whitepaper, Redefining Multi Asset Solutions considers if these strategies can meet their objectives as the global economy rebuilds and what steps will reinforce their appeal to fund managers.
The whitepaper includes insight from guests, who attended a virtual roundtable hosted by CAMRADATA in April, from firms including QMA Wadhwani LLP, Waverton Investment Management, Aon, bfinance, Cardano, Cartwright and Spence.
The report highlights that despite huge monetary and fiscal interventions from Governments and centrals banks to preserve investor confidence and nurture business recovery; investors are still faced with equity volatility, near-zero interest rates and low yields on government bonds.
The big question is how investors will manage their asset allocation and fund selection in a post-Covid economy. Multi-asset funds could be a solution, as they aim to deliver attractive returns across a wide range of market conditions, employing an asset mix that protects against a sharp rise in correlation under stress conditions.
Sean Thompson, Managing Director, CAMRADATA said, “An attraction of multi-asset investing is that it enables timely rebalancing of allocations between asset classes, while providing integrated risk oversight that spans the full multi-asset portfolio.
“The aim is to deliver portfolio diversification, while offering flexibility to tailor investment outcomes to the needs of the investor, whether this is growth, income, risk minimisation or absolute return. But, multi-asset strategies had a difficult three or four years prior to the pandemic which may influence decisions.
“Data however from the CAMRADATA universe of multi-asset funds for the period prior to the Covid-19 shock indicates that many of them were broadly delivering to their mandate. Our panel considers if the timing is right for multi-asset strategies and how fund managers adapt them to thrive in a post-Covid environment.”
The CAMRADATA roundtable began by exploring which organisations had felt the need to redefine or re-categorise multi-asset, with panellists outlining their approach. The discussion moved on to strategies that bridge the gap between beta and alpha.
The panel’s fund selectors were then asked whether they look at multi-asset strategies at the fund level or lower down at the individual funds’ stock exposures, to get a sense of the evaluation process of correlations and beta.
The conversation turned next to the argument for a traditional 60/40 equity/bond allocation, and protective strategies, before finishing on the issues of timing, alpha creation and varying beta exposure.
Key takeaway points were:
· One panellist began by saying that they had split multi-asset into two sub-sectors, Market-Driven and Dynamic. The rationale for the division is that many pension schemes have significant exposure to multi-asset – typically in the form of Diversified Growth Funds (DGF).
- A pension scheme fiduciary manager said that are two main components, market beta and alpha generation, to the solutions they provide. Alpha generation includes, but are not limited to, hedge funds, absolute return, credit and long-only equities.
- An institutional investor said that multi-asset was mostly long-only or at least directional. It could be active or passive but they made a distinction from Absolute Return strategies and hedge funds.
- Fund selectors responded to whether they look at multi-asset strategies at fund level or stock exposure. One said if you look through to line-by-line exposures, and then change your allocations to the funds you hold, you can end up chasing your tail.
- In their view, consultants should focus on advising on the selection of a combination of funds and leave the security-level decision-making to the managers.
- Another said the evaluation process evolved as managers produced new styles, and they spend lots of time assessing whether there is something that differentiates the portfolio manager from the rest of the market – irrespective of the type of multi-asset.
- The issue was raised of whether there was a role for lower reliance on market betas over the cycle, with one saying in 2009 they would argue ‘no’ because of the sharp pull to value. All things were righting themselves. But now, in mid-2021, they were not so sure.
- Looking at the traditional 60/40 equity/bond allocation, one panellist said it has produced extraordinary performance over the last thirty years, but the question is whether it will and can continue? Mathematically, it is very unlikely for bonds.
· In terms of timings and cycles, one said it was hard to look past the coming months. Another noted that cycles are not regular anyway, adding 2020 appeared to be a whole cycle in a year.
· The final comment from one panellist was that, to the extent you are asking managers to do anything dynamic, you should not be timing the strategy or the manager itself. What you want upfront is a robustly diversified portfolio.
Additional insight is offered in the whitepaper with two articles from the sponsors:
- QMA Wadhwani LLP: ‘The Importance of Agility in Navigating Unchartered Waters’
- Waverton Investment Management: ‘Redefining multi-asset as risks abound’
To download the ‘Redefining Multi Asset Solutions whitepaper click here
For more information on CAMRADATA visit www.camradata.com