Our fall column on multi-asset.

1. Multi-Asset investing in
a challenging global
economic environment
Valentijn van Nieuwenhuijzen
Head of Multi-Asset

2. The popularity of multi-asset solutions is clearly seen by the significant inflows finding their way into the
sector. Apart from their attractiveness in the current market climate, diversified multi-asset approaches
should be considered in all market environments. History has shown that differences in returns between
asset classes can be quite significant with also large differences persisting between regions and sectors.
Many things have changed since the start of the global financial crisis in 2008.
As a result of the crisis, central banks around the world have lowered their key
interest rates and engaged in unconventional easing measures. This has led to
an unprecedented decline in government bond yields in developed market
(DM) economies, despite recent steep corrections in yields on, for example,
German Bunds in April and May this year. Multi-asset funds give investors the
opportunity to replace part of the interest rate risk they face in their bond
portfolios with potentially better rewarded opportunities in other asset
classes, without increasing the overall portfolio risk. When we return to an
environment of greater investor confidence and improved global growth
conditions, persisting global economic and monetary policy divergence will
continue to lead to return differences between and within asset classes.
Regions will be in different phases of the cycle and sectors will respond in a
variety of ways. Furthermore, the frequent occurrence of unexpected events
also rewards those investors with the ability to change views quickly and act
accordingly.
Recent developments
Ongoing uncertainty about emerging markets (EM) caused a spill over into
DM assets in August and September, resulting in a sharp rise in DM equity
market volatility. Volatility rose much more compared to other periods of
uncertainty in past years. In fact, the volatility spike (as measured by the VIX)
was comparable with late 2011, although the duration of severe uncertainty
was much shorter. Currently, volatility is still elevated, but has come down
from extreme levels.
At the centre of the uncertainty were emerging markets. The Chinese
currency devaluation drove many other EM currencies down. These
currencies have been weakening for some time now and quite a few
currencies have fallen significantly against the US dollar since the start of the
year. The spill over of the EM volatility was most noticeable in equities and
commodities. Other risky assets were also not spared and we saw for
instance a widening of Euro area investment grade and high yield spreads.
One important way in which the EM turmoil is impacting DM government bond
yields is through inflation expectations. EM weakness has resulted in declining
commodity prices, which have strongly impacted inflation expectations over
the past year. In case the market would be worried about the overall outlook
for global economic growth and monetary policy, also the real yield would
decline. This is however not the case at this stage. There is still a slight upward
trend in real yields in the US and the Eurozone. Whether this trend continues
will depend on the level of contagion of the EM crisis into the DM growth
environment.
Outlook
In the medium term, we expect a moderate global economic recovery which
supports risky asset fundamentals. From a monetary policy perspective, we
expect the Fed to move slowly on its path of normalizing monetary conditions,
which implies a process of slowly increasing bond yields in the coming years.
In the Eurozone and Japan monetary conditions are still being loosened. The
result of this is that, on a net basis, global liquidity continues to expand.
However, the transition into policy normalization by the Fed may result in
increased market volatility. We expect to remain in a relatively low inflation
environment for the time being.
For the moment, markets do look fragile with a life of their own. The EM
environment remains very weak, with the potential of a spill-over into DM. We
have adopted a more defensive asset allocation stance over the past couple
of weeks. As markets are to a large extent driven by short-term sentiment and
news currently, volatility is expected to remain high. In such market
circumstances, value can be added by adapting to market behaviour in order
to exploit new opportunities available in the cross-currents of underlying
fundamentals and market behaviour.
Valentijn van Nieuwenhuijzen
Head of Multi-Asset

3. About NN Investment Partners
NN Investment Partners is the asset manager of NN Group N.V., a publicly traded corporation. NN
Investment Partners is head-quartered in The Hague, The Netherlands. NN Investment Partners
manages in aggregate approximately EUR 184 bln* (USD 206 bln*) in assets for institutions and
individual investors worldwide. NN Investment Partners employs over 1,100 staff and is active in 16
countries across Europe, Middle East, Asia and U.S.
As of April 07, ING Investment Management has renamed to NN Investment Partners. NN
Investment Partners is part of NN Group N.V., a publicly traded corporation. Currently NN Group is
37.1% owned by ING Group. ING intends to divest the remaining stake in NN Group before 31
December 2016, in line with the timeline ING has agreed with the European Commission.”
*Figures as of 30 June 2015
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