Multi-asset strategies for ‘lower-for-longer’ environment

A ‘lower-for-longer’ environment, as it has come to be known, has prompted various responses from big investors, including going out the risk curve. Increasingly popular, though, is the use of single-manager multi-asset strategies.

Multi-asset funds can incorporate non-market directional strategies which can provide an absolute return and/or downside protection. In the case of Insight Investments’ multi-asset fund, for instance, roughly half of the portfolio is market directional and the other half managed on a total return basis. Non-directional strategies include active currency management and relative-value trades.

Steve Waddington, London-based portfolio manager for Insight’s multi-asset group, which was set up in 2004, addressed last week’s Conference of Major Super Funds on the subject of ‘lower for longer’ and current themes.

He said in an interview afterwards that it was difficult for investors to have confidence in their overall portfolio in the current environment. With multi-asset investing there was a broader opportunity set with which to work.

Insight incorporates the former Pareto Partners, a big currency specialist and another BNY Mellon affiliate manager with which it merged in 2012, and which has had an Australian presence dating back to the 1990s.

One of Pareto’s founders, Margaret Waller, still works out of the Sydney office, run by Bruce Murphy, a former chief executive of BNY Mellon in Australia. Murphy recently recruited a head of advisor distribution, Rob Thompson, who was previously at PM Capital.

Insight has about A$900 billion under management and more than 200 investment professionals across its range of investment teams, including A$40 billion in Australia. The multi-asset strategy has A$9.4 billion under management, of which about A$2 billion is in the Australian-domiciled fund launched in 2014.

Waddington said that over the course of 2016 the portfolio changed shape quite markedly. The year started with concerns about a global growth slowdown, which then moderated as the US economy picked up, leading to a “more balanced” portfolio by the middle of the year.

There was a re-pricing in markets out of reduced fears of deflation, prompting the manager to go long US TIPS (inflation bonds) and short nominal bonds, for instance. After the initial reaction to Brexit, there was a more synchronised upswing and, more recently, the rising tide in the US following the presidential election.

Insight splits the asset classes into four broad categories, each of which has a “real” range of allocations, according to Waddington, meaning the manager uses the full breadth available.

The categories, each of which has several in asset sub-classes and strategies, are equity, fixed income, real assets and total return strategies. Cash is also given a wide range. The total return strategies include relative value, dividends, absolute return funds, range-bound strategies and breakout strategies.

Among current concerns for the manager are political events such as the French election and, later in the year, the German election. There is also the concern of what happens to emerging markets if the US dollar keeps rising.

A recent worrying signal, also, was in the loan market where demand had started to drop off for the first time since 2014.