Asset allocation-led investing
Baring Asset Management Limited
EC2M 2XY APRIL 2010
Tel: +44 (0)20 7628 6000 FOR PROFESSIONAL ADVISERS ONLY
Fax: +44 (0)20 7638 7928
Multi-asset investing from Baring
Baring Multi Co
Asset allocation-led investing
We believe in the equity risk premium: that investors are
compensated for the higher risk of holding equities by higher
real returns over the long-run. Furthermore, we believe that our
multi-asset approach to investing, which we pioneered eight
years ago in the institutional market, can deliver equity-like
returns with less risk than holding an equity-only portfolio.
We believe asset allocation, not stock or fund selection, is
responsible for the majority of investment returns over the long
term. Too often asset allocation is thought of as something
static: an index weighting to which managers re-balance
portfolios every few months. For us, it’s at the very heart of the
We don’t attempt to call the direction of the market on a short-
term basis. However, our experience suggests that if we can get
the big decisions right, we can generate good long-term positive
returns for investors.
Since we pioneered managing money this way we have found
that a growing number of pension funds agree with us. We have
gained 16 consultant buy ratings and raised £2.7 billion in assets
in our absolute return multi-asset investment strategies as at the
end of February 2010.
Twelve months ago, we launched the Baring Multi Asset Fund to
retail investors in March 2009. The Fund aims to generate a
capital return which exceeds UK inflation over the medium to
long term. In an uncertain world, we believe that’s the type of
return many investors are looking for.
Asset allocation: the most important investment
decision The benefits of tactical asset allocation
The way we manage the Baring Multi Asset Fund is asset Since we know that markets deliver returns unevenly through the
allocation-led. We believe about 75% of investment returns business cycle we tactically adapt the asset allocation, with the aim of
come from asset allocation, with fund and security selection generating investment returns when they are available, then reducing
contributing the remaining 25%. risk when the environment deteriorates.
The objective of the Fund is to generate a capital return in We believe the combination of strategic and tactical asset allocation
excess of UK inflation (RPI) over the medium to long term, helps to reduce portfolio volatility compared to equities alone, and
but there is no benchmark and no index against which the contributes to our meeting the investment objective of delivering returns
fund is managed. This means that we don’t need to have a ahead of inflation. In this market environment, we believe that the ability
starting bias towards any asset classes. to move quickly and take advantage of tactical asset allocation
Instead, we rely on solid investment research to identify the opportunities as they arise will be key.
most attractive investments at any given time. From this, we Current strategic and tactical asset allocation
build a portfolio which seeks to meet the investment
10-year optimal portfolio
Our investment process Alternatives
Start with blank sheet of paper Property
Identify best asset classes
Anticipate and respond to events quickly
Choose the best ingredients
Predicted risk* 9.89%
Current asset allocation
Forward-looking return estimates P ro perty Cash
We begin by analysing each asset class to determine what 3% 4% UK equity
we believe its trend return will be over the long term. We are Go ld bullio n 26%
forward looking rather than backward looking, and derive our 8%
P acific ex
return estimates from forecast trend growth, productivity and A lternatives Japan
dividend levels for each major economy. 6% 2%
We then analyse “riskiness” by measuring the volatility of equity
each asset and how it performs in relation to the other 2%
investments we might make in the portfolio. We look for 13% Emerging
investments which have a low correlation with other holdings. equity
By building a portfolio in this way, we can help to diversify
returns and manage investment risk, with the aim of
achieving the investment objective. Glo bal bo nds 5%
Glo bal index
19% Glo bal equity
Taking a long-term view linked
Having calculated the likely return, correlation and risk factors
Predicted Risk 8.18%
for each individual asset class, our optimisation software
suggests an asset allocation for the portfolio which is then * Source: Barings. Risk = standard deviation of annualised return from asset
reviewed and adjusted by the investment manager. allocation. Optimal and current asset allocation as at 28th February 2010.
We call this the 10-year optimal portfolio. It is the portfolio we
believe we could lock away in a drawer for ten years and
which would still have a good chance of delivering the
Taking advantage of a wide opportunity set A proven investment approach
The Baring Multi Asset Fund benefits from a wide opportunity The Baring Multi Asset Fund might be relatively new to the
set. Unlike some multi-asset funds, which are restricted to market, but we have successfully managed money for institutional
investing in just the major asset classes, the Baring Multi Asset clients in this way since 2001.
Fund can hold carefully selected alternative investments, Our experience covers bad times (2001-2002 and 2007-2008) as
including commodities, property and private equity. well as good times (2003-2006 and 2009). This gives us valuable
This means that we have greater flexibility when constructing the experience of how cross-correlations can change, how predicted
investment portfolio whilst meeting the requirements of the IMA and actual risk can differ, and what tools are needed to protect the
Cautious Managed Sector. At times of uncertainty this flexibility real value of investors’ money.
will allow us to increase tactical exposure to funds of hedge
At the end of February 2010 we had £2.7 billion under
funds, cash, structured products and futures and options, with
management in multi-asset absolute return portfolios, mainly for
the aim of protecting the value of your investments. pension fund clients. We had 16 consultant buy ratings for our
In practice, we believe that an investment return of RPI+4% p.a., ability in this area.
net of fees, will be achievable over the long term.
An experienced investment team
Pragmatic implementation The Baring Multi Asset Fund is managed by Andrew Cole (bottom
When it comes to implementing the tactical asset allocation row, second from left), a senior member of our Multi-Asset Team
ideas we have identified, we are wholly pragmatic. We have the who has 30 years of investment experience. Including Andrew,
flexibility to invest directly in the underlying securities, invest in a the Multi-Asset Team contains eight investment managers, with
Barings fund, or invest in a fund managed by a third-party an average of more than 20 years of investment experience, and
manager, and will pick the solution which we believe offers the one analyst.
best value for investors. Andrew was appointed to the Strategic Policy Group (SPG), the
Where the asset class and market are efficient, we are likely to company’s global macro research and Asset Allocation Team, in
invest either directly or through an index fund, as these tend to 2005. He is chair of the SPG Risk Sub Group and a member of
be lower cost options. However, in asset classes where manager the Economic Group. Andrew joined the Fixed Income
skill can make a considerable difference to investment returns, Department at Baring Asset Management in 1986. He was
we will assess all the options available before reaching a appointed a Director in 1994 and joined the Multi Asset Portfolio
decision. We will generally look to manage money actively in Team in 1995.
emerging equity markets for example.
There is no obligation to buy Barings funds, and no double-
charging from Barings on these products. Barings funds are
assessed by the investment team in the same way as any other
pooled fund, and must stand on their merits if they are to earn a
place in the portfolio.
Baring Multi Asset Fund characteristics
Investment objective To generate a capital return which
exceeds UK inflation over the medium to
Investment approach Targeted return multi-asset investing
Structure ICVC complying with Non-UCITS retail
scheme (NURS) regulations
Managers Andrew Cole
IMA sector Cautious Managed
Management fee Class A 1.5% AMC
Launch date 20th March 2009
5-year track record of performance from the team As can be seen in the chart below, the Baring Dynamic Asset
Allocation Fund, our flagship institutional product, ended the
The charts below show the track record of the multi-asset team
period in positive territory, despite exceptionally demanding
in managing targeted return multi-asset portfolios, in the form of
market conditions. This is significantly ahead of the MSCI World
our Multi-Asset GBP Inflation/Cash Targeted Solutions: High
Index and the IMA Cautious Managed Sector.
Return composite. Full details of this can be found on page 5.
Baring Dynamic Asset Allocation Fund track record
The period shown is for the five years to the end of January
2010. Our track record shows that it is possible to deliver returns 130 Baring Dynamic Asset Allocation Fund
similar to those available from global equity markets with typically MSCI AC World
less risk, using our successful multi-asset approach. 120 IMA Cautious Managed
Return % annualised
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Target Return FTSE All MSCI World Citi WGB Past performance is not a guide to future performance
composite Share Index Index Index Source: Morningstar. Baring Dynamic Asset Allocation Fund inception
date: 16th January 2007. Chart shows gross returns for the Fund, the IMA
Cautious Managed sector and MSCI World Index from earliest available
Risk data on 19th Jan 2007 to 31st January 2010. All in Sterling terms, indexed.
The Baring Multi Asset Fund’s track record
The Baring Multi Asset Fund was launched in March 2009.
10.9 Although it is still early days for the Fund, we are pleased with its
performance since launch.
Target Return FTSE All MSCI World Citi WGB
composite Share Index Index Index 20
Past performance is not a guide to future performance
Source: Barings as at 31 January 2010
Reference to the index is for comparative purposes only. The composite
risk and return data should be considered as supplemental information 10
which complements the Multi Asset GBP Inflation/Cash Targeted
Solutions: High Return Composite presentation as provided on the
Our institutional flagship fund points the way
The Dynamic Asset Allocation Fund, the pooled fund we offer to 0
institutional investors in the UK, was launched in January 2007. 3 months 6 months 1 year Since
While the funds have slightly different investment objectives and inception*
charges, we believe the success of our absolute return multi- Baring Multi Asset Fund RPI +4%
asset approach can be seen in the performance of this fund
since its launch, compared to the MSCI World Index and the IMA Past performance is not a guide to future performance
Cautious Managed Sector.
Source: Morningstar, to end of March 2010. Bid to bid with net
income reinvested, in Sterling. Inception 20th March 2009.
Our investment view: decrease exposure to risk Finally, a word on risk
assets The Baring Multi Asset Fund is a targeted return multi-asset
Since mid-2009 we have run the portfolio at a lower level of risk fund. It has a high degree of flexibility where it invests, including
than we would normally expect over the longer term. In direct equities and bonds, pooled equities and bonds, cash and
particular, we reduced equities and corporate bond positions in cash-like instruments, and various alternative investments such
the belief that recovery in Western economies would be fragile. as commodities, property, private equity and hedge funds.
Central banks are now beginning the slow process of As such, investment in the fund can involve exposure not just to
withdrawing emergency measures introduced to support the the general volatility which can characterise equity and bond
banking system, while governments are starting to roll back fiscal markets from time to time, but to the additional risk factors
stimulus. Some of this is healthy, for example in China, where associated with investment in alternative investments, emerging
authorities responded to a growth rate which reached 10.7% in markets and smaller companies.
the fourth quarter of 2009. In Europe, the need to bring down These include liquidity and counterparty risks in the case of
budget deficits will constrain growth. In the West more generally, certain alternative investments, and the possibility of a lower
banks are curtailing some activities and shrinking parts of their standard of corporate governance, increased political risk and
balance sheets in anticipation of tighter regulation. the likelihood of a high degree of volatility in the case of
In bond markets, new issuance is expected to be at a high level, emerging markets and smaller companies.
and this could force yields higher. In equities, the concern is that Returns from overseas equity markets can also be subject to
company margins are relatively thin, leaving little room for fluctuations in exchange rates, which can have the effect of
earnings downgrades. eroding or enhancing the value of the returns for investors.
In this environment, we expect to remain reasonably cautious. A Although the manager will aim to generate a positive investment
key test over the coming months will be evidence of whether the return ahead of inflation, it is possible that the asset allocation
US consumer can bear slightly higher mortgage rates as the strategy and/or security selection will be unsuccessful and that a
Federal Reserve stops buying mortgage bonds as part of its capital loss will be incurred as a result.
Quantitative Easing programme. If the economy passes this test,
For a full listing of the risk factors associated with the Baring
equities should start to rally again.
Multi Asset Fund investors should refer to the prospectus.
Baring Asset Management: Multi Asset : GBP Inflation/Cash Targeted Solutions: High Return
Ending December 31, 2009
Period to date 3 Years per 5 Years per
Results shown in GBP (3 Months) 1 Year annum annum
Composite Gross of Investment Management Fees 3.19 21.40 6.42 10.22
Benchmark: RPI +4.5% p.a. 1.26 3.95 7.18 7.36
Benchmark: CPI +5% p.a. 1.75 7.28 7.83 7.62
For the purpose of GIPS Compliance, the "Firm" is defined as the investment firm Baring Asset Management Limited (and its relevant
subsidiaries which are registered with the appropriate regulatory authorities to undertake investment business in those jurisdictions in which
they operate) and Baring Asset Management Inc. (together hereinafter referred to as "the Firm").
The Composite is comprised of multi-asset accounts managed for Sterling based clients, which can invest across a broad spectrum of
assets with an absolute return target. The investments strategy is to take an extended degree of risk in order to seek to achieve a return in
line with the accounts investment objectives. The individual portfolios within the composite have the following current target objectives: 3mth
LIBOR +4%; CPI +4.5%; CPI +5%; Produce Income; RPI + 4% (net of fees), RPI +4.5%; RPI +5%; RPI +6%; RPI +7%; To protect Capital &
Produce Income; Total Return 7.5%, Total Return 8%. With effect from 1st April 2007 the Composite was renamed from 'Multi Asset
Targeted Solutions GBP RPI +4.5% to + 5.5%'. Prior to 1st July 2006, the Composite was named 'Extended Risk Solutions GBP’.
The Firm claims compliance with the Global Investment Performance Standards (GIPS ®).
The benchmarks shown for comparison purposes are the RPI +4.5% per annum, and CPI + 5% per annum. Each monthly return for the
CPI/RPI is calculated on an average of the monthly rate over the prior 12 months.
A complete list and description of all composites and/or a presentation that adheres to the GIPS standards is available on request by
sending an e-mail to email@example.com.
Three portfolios run according to Baring Asset Management’s Multi Asset: GBP Inflation / Cash Targeted Solutions: High Return strategy
have, on occasion, used equity index futures for the purpose of adjusting asset exposure and liquidity. Leveraged strategies have not been