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While investors can approach 2021 with optimism that an effective Covid-19 vaccine will be available, the path of the economic recovery remains unclear. A broader toolkit of investments is needed – not just the regions, sectors and strategies that have recently done well.
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Multi-asset strategies have grown to dominate European retail investment over the past decade, and new product innovation should ensure this trend continues. Indeed, testing market conditions can provide a platform for multi-asset portfolios to stand out: their diversified approach can give investors more flexibility to hunt down opportunities.
Despite their relatively recent arrival, multi-asset strategies have grown to dominate European retail investment
In-built diversification enables investors to benefit from a wide portfolio within a single investment
Managers’ ability to adjust portfolio positions across markets and asset types, without restriction of a benchmark, helps to maximise flexibility and manage risk
Multi-asset strategies are growing in popularity: more than half of all European retail investments over the past 15 years were made into multi-asset portfolios. These inflows have been driven in large part by investors looking to maintain returns while protecting against downside risk. Now, multi-asset investors may find themselves well-positioned to take advantage of a market environment governed by increased volatility and heightened uncertainty.
Our Risk Monitor survey highlighted that navigating the trade-off between upside potential and downside risk is a top challenge for investors, with more than 50% decreasing their return expectations. The good news is, as client demands and concerns have evolved, multi-asset managers have responded by bringing new products – underpinned by new strategies – to market.
For instance, many multi-asset strategies have diversified, embracing a broader range of assets and opportunities for investors. Their blend of equities and bonds can cover a range of geographies and sectors, and many portfolios further bolster diversification with the addition of non-traditional asset classes, such as real estate and infrastructure.
While diversification cannot guarantee positive returns or protection against loss, it provides an additional layer of risk management. An investor could only otherwise achieve this by building a portfolio themselves, with additional cost and effort. In a risk-managed multi-asset portfolio, the risk attached to each underlying asset class is offset by the rest of the portfolio, with the goal of managing the total risk across the strategy.
Delivering beyond diversification
While a basic balanced portfolio can give investors an acceptable level of diversification, what sets some multi-asset strategies apart is that they can employ a solution-based approach that seeks to respond to investors’ evolving needs.
For example, actively managed multi-asset portfolios will monitor and adjust asset allocation according to risk or opportunity. This can help investors navigate changing market conditions more dynamically, since professional managers can rebalance the portfolio whenever needed, informed by in-depth knowledge and analysis of the underlying assets.
In addition, some multi-asset strategies are not tethered to a benchmark index. This gives them more freedom to make adjustments according to market conditions, diversify risk, and produce a return stream designed to be uncorrelated with general market performance.
These multiple benefits are increasingly central to the appeal of multi-asset strategies, particularly in a market environment where yields are likely to be subdued for some years and geopolitical and other risks are high on investors’ watch list.
Figure 1a Europe funds flows
Source: Broadridge, LuminAM, AllianzGI Global Capital Markets & Thematic Research. Data as at May 2017.
The embodiment of active management
At Allianz Global Investors, we strive to take multi-asset investing a step further. We have a large global team with expertise across asset classes and geographies. Close to 100 investment professionals from Asia, the US and Europe come together monthly to discuss major events in global capital markets.
This collective approach helps to eliminate the “framing bias”, where a specialist focus on one specific area can come at the expense of opportunities elsewhere.
We think the multi-asset approach is the embodiment of active management: it requires active managers with diverse skill sets, who use their global expertise to access a range of global opportunities and reposition our strategies for whatever the environment brings.
Investing involves risk. There is no guarantee that actively managed investments will outperform the broader market. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.
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Adoption of ESG investing is growing as investors recognise these strategies’ potential for managing risk and driving performance. But as ESG labels proliferate, an understanding of the terminology involved is essential to finding the most appropriate approach.
ESG factors have become a mainstream concern for investors; US SIF data show assets invested in US ESG strategies rising by 38% in the past two years
Adopting an integrated ESG strategy means ESG factors are considered as part of the existing investment process for a strategy
An SRI strategy relies on screening out investments based on negative criteria; screening for positive criteria is at the heart of impact investing
Regulatory change is adding to the impetus behind ESG