Feature – Multi asset
portfolios through changes that can be tactical in nature,” Municchi says.
In search of diversification The increased need for flexibility and dynamism is becoming even more important in the current environment of the low yields available across asset classes. Furthermore, as equity and bond markets are expected to deliver lower returns during the next five years than in recent periods, there is a potential warning here that will have a knock-on impact on multi-asset portfolios. So much so that multi-asset investors face the prospect of needing to increase levels of market risk, set against a back- ground of falling returns for equities and fixed income. It is in this way that multi asset has also been an approach open to change, given the evolving investment environment. Diversified growth funds are multi-asset funds that grew out of the global financial crisis and changes to regulation. There has also been a recent trend of creating multi-asset themes based on new technological or infrastructure developments. “These developments are driven, in part, from the change in the relationship between equity and bonds,” Thomas says. “Generally, this is an inverse relationship which sees bonds rally when equity prices fall. “However,” Thomas adds, “as bond yields have fallen – driven lower by central banks providing liquidity to the system via quantitative easing – they have become a less attractive way to offset equity market volatility. This weaker convexity forces managers to search further afield for diversification.”
Sustainable force
Offering another perspective on the changes in multi asset, Municchi says: “Thematic investing has gained a central role in the proposition of the fund management industry thanks to its increasing popularity over recent years. However, we think sustainability is the true underlying force driving the shift, and with it a focus on investments that belong to the information technology and infrastructure sectors.” Covid has also had an impact on the developments in multi-as- set strategies, with a sustainable twist. “Since the pandemic started, we have assisted to an acceleration in the change of consumers’ habits and preferences that is focused on favour- ing a more sustainable economic growth in the future: compa- nies enabling technological innovations and helping the energy transition have been considered among the winners. But they are not alone,” Municchi says.
Like much else in the investment world, there has been the introduction of responsible multi asset with the growth of ESG investing, and possibly, in the most unlikely of places. The China Minsheng Bank backed Minsheng Multi-Asset ESG
46 | portfolio institutional | November 2021 | issue 108
Global Allocation index is a case in point. It is China’s first global multi-asset index with an ESG criteria embedded. As with everything associated with ESG, this is inevitably going to be a growth area. “Another notable development that confirms how sustainability should play a central role in our clients’ portfolio, is the effort by governments worldwide to considerably increase their investment plans for better and more efficient infrastructures, which will generate several investment opportunities,” Munic- chi says.
And here there is possibly big growth in the G as well as the E and the S, of ESG in multi asset. Municchi says: “As multi-as- set investors and asset owners we have the opportunity to play an active stewardship role across multiple asset classes. Our sustainable investment approach introduces new perspectives to analyse each opportunity with the two-fold goals of provid- ing attractive returns and over the long-term having a net pos- itive impact on the environment and society.” The long-term outlook being vital here, for multi-asset strate- gies to adjust. “The long-term horizon is important to allow companies enough time to transition and to achieve their sus- tainable objectives, and for those companies without a clear transition plan to steer their management strategy,” Municchi says.
“In the latter situation we, as an asset owner, are given a crucial role as stewards and could be part of a company’s journey by actively engaging as shareholders with the management, by increasing awareness on environmental or social issues, or by participating in the voting process on corporate resolutions,” Municchi says.
The broad nature of multi- asset strategies suggest that investors will have likely experienced varied
results. Lloyd Thomas, Border To Coast
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