The benefits of multi asset investing
Being active multi asset investors, we are fortunate to have the ability to rotate in and out of different asset classes. Having inflation plus benchmarks means, historically, our targets have always risen in value.
Being active multi asset investors, we are fortunate to have the ability to rotate in and out of different asset classes. Having inflation plus benchmarks means, historically, our targets have always risen in value. This forces us to consider the level of absolute returns on offer, as well as the relative return prospects from competing asset classes, whilst building portfolios fit for purpose in a particular environment.
The Coronavirus outbreak that began in late 2019 and crossed borders through the first quarter of 2020, sneaked up on many investors. The initial market reaction resulted in an indiscriminate sell off across all asset classes. Even bonds or equities issued by high quality companies and developed world governments saw their prices marked down on some days during the sell off, as the dash for cash dried up liquidity in markets.
Since the initial outbreak of the health crises and ensuing market rout, policy makers reacted swiftly throughout the western world and developed Asia. The implementation of social measures through lock downs and restriction of movement has had significant impact on economic output, data for which has yet to be fully released. Subsequently, we have seen fiscal and monetary measures that provide stimulus in quantum never seen in any historic period outside of war or banking crises.
History does teach us that looser monetary policy is applauded by financial market participants. A good portion of the recent optimism in markets can be attributed to the trillions of dollars of l liquidity that has been unleashed. Unfortunately, that has not changed the fact that the economic outlook remains uncertain. A vaccine for the novel virus has yet to be developed and we do not know whether a second wave of the virus will occur once lock down measures are eased. This is even before we consider the potential impact this will have on consumer behaviour, the effects from job losses and corporate executives’ plans to reassess changes to business models, such as shortening of supply chains.
Despite the environment in which we find ourselves, we continue to be active asset allocators. Our focus has been on asset classes where we have ‘real’ or physical asset backing, utilised and operated by strong counterparties or tenants, such as infrastructure and high-quality non-retail property with structural tailwinds. We have also preferred investments where returns are derived from contractual cash flows, such as interest payments in the case of high yield bonds rather than ‘nice to have’ distributions from equities (dividends and share buybacks) that are not obligatory at the end of the day and are ‘junior’ in ranking to other forms of debt.
At CAM, we have built an investment process that is global in its reach and enables investment across a variety of asset classes when opportunities arise. This allows us to assess risk and reward on a cross asset basis across several regions and choose how to appropriately utilise our risk budget.
We have already seen political and economic pressures impacting the ability of many large businesses in the UK and abroad to pay dividends and pursue share buyback plans. For now, we prefer to be positioned in those asset classes that reduce the uncertainty arising from social factors such as political involvement or that do not require a sharp reversal in economic growth prospects.
Aqib Hashamali CFA
Senior investment analyst
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