3. CITYWIREGLOBAL.COM 3
MULTI-ASSET < CONTENTS & LEADER
LANDING A PERFECT
COMBINATION
CHRIS SLOLEY
Deputy Editor
Citywire Global
Mixed asset funds sit in a unique spot in terms
of asset allocation, with investors able to tap the
best opportunities from across equities, bonds and
alternatives depending on the prevailing market mood.
Much like in fishing, casting a wide net can increase
potential returns but also brings with it the possibility
of drawing in unwanted catches from unpopular or
underperforming areas of the market.
This supplement takes a closer look at how fund
managers can defend against unwittingly adding risk
and also how they can add both performance and
protection by making timely moves into different
investments.
To gain a greater understanding of how mixed asset
funds fit into allocation strategies, we canvassed
leading fund selectors and investment professionals
to uncover the best ways to make the most of a mixed
asset approach.
In addition, we also shine a light on the stand-out
performers over three and five years in risk-adjusted
terms. These leading lights reveal how to find the right
blend of investment ideas in order to produce positive
returns regardless of what the macro environment has
to throw at them.
The fund selectors
Fund pickers give us their take
on the multi-asset market and
name their favoured strategies
The fund managers
Leading investors reveal how
they have balanced risk and
reward
The view ahead
Top fund managers discuss
tactics for the increasingly
uncertain outlook
4 11 21
4. CITYWIRE GLOBAL | SEPTEMBER 20154
MULTI-ASSET > THE FUND SELECTORS
HOW ARE FUND ANALYSTS USING
MULTI-ASSET STRATEGIES?
Fund pickers give us their outlook on the mixed
asset market and name the funds they are
using or watching
Since the financial crisis, the majority of our clients have remained risk averse. Today, they pay
particular attention to product transparency and are interested in characteristics offered by multi-
asset funds such as diversification, low volatility, capital preservation and limited downside risk.
However, current geopolitical events have increased volatility as well as the correlation between
asset classes, which makes building a diversified portfolio far more complex.
For example, during the correction initiated by the Grexit risk in May and June, we saw that
bonds did not live up to their role as a safe asset and even recorded negative performances. So,
diversification in traditional asset classes is becoming increasingly difficult and investors need to
pay more attention to relative valuation and liquidity tailwinds.
Experience shows how difficult it is to predict the impact of a negative shock in the markets.
Having a degree of anticipation does help to uncover outstanding multi-asset funds.
One of the main challenges these strategies face today, is taking account of liquidity risks in
some asset classes.
Recently, we have seen periods of volatility in which liquidity has evaporated in a matter of
minutes creating a ‘flash crash’ in fixed-income, forex and equities markets. The decline in market
liquidity is especially worrying in fixed income assets traded over the counter.
Even though the Fed is preparing everyone for a change in its monetary policy regime, it will
take time before investors adapt to this new era.
We have all been living in an environment of financial repression, low interest rates and low
volatility for years now. The last time the Fed started to raise interest rates was in 2004; we
are talking about an event that many fund managers out there have not experienced in their
professional life and that’s a real challenge for fund selectors.
We are adapting our fund selection approach to this new market environment and favouring
those multi-asset fund managers with previous experience of monetary normalisation who can
manage liquidity risk during stressful periods.
We have selected several multi-asset funds which have been very successful over the last few
years including the M&G Dynamic Allocation, Carmignac Patrimoine, Echiquier ARTY and CPR
Croissance Réactive funds.
S I LV I A B O C C H I O T T I
L C L
P A R I S
5. CITYWIREGLOBAL.COM 5
THE FUND SELECTORS < MULTI-ASSET
Y U R I K R A S S I N
U F S C A P I TA L PA R T N E R S
M O S C O W
Multi-asset funds are a very convenient way to gain diversified
exposure to a broad range of securities. However, we are a little
critical towards the conventional perceptions held by many asset
allocators regarding current global economic affairs.
Most portfolios are constructed under the implicit premise that
we are acting within a relatively stable monetary system. The
great majority of all currently active investment professionals have
been exclusively active in a time period often referred to as ‘great
moderation’.
This historically extraordinary time period offered mainly falling
interest rates and disinflation and a financial paradigm based
on a ‘riskless rate’. Market participants are currently completely
abandoning the possibility that a major industrialised state could
default, despite permanently rising global debt levels.
In our view, we are entering an environment of increasingly
unstable global financial architecture. The current fiat-money
system has led to huge distortions of capital allocation and enabled
governments to engage in reckless spending sprees.
The artificial price fixing of interest rates has led to mal-
M A R K V A L E K
I N C R E M E N T U M
V A D U Z
investments on a grand scale and among others to a gigantic debt
bubble. Going forward we will witness – and in fact we have already
begun witnessing – more extreme waves of deflation and inflation
than during the past 30 years.
Our views are heavily influenced by the Austrian School of
Economics as well as by Complexity Theory. Both disciplines are
seldom taught at mainstream universities today.
Consequently, we are now launching our own multi-asset
strategy combining assets in a way that anticipates more extreme
scenarios. This strategy will include strategic allocations in equities,
commodities, managed futures and even some fixed income.
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Multi-asset strategies, as well as balanced funds which are
executing such an approach, are mostly attractive for those
investors who are going for a good balance between risk and
return.
This can be reached through several specific features
inherent in different classes of assets, such as sensitivity to
short, medium, and long-term economic factors, cycles of
ups and downs, and correlations between a given sector and
the broad market.
The most important thing about multi-asset strategies is
rather simple: they should provide investors with a high level
of capital protection with some modest return. The latter
should generally be equal or higher than the average rate of
growth in the world’s economy.
We all know that bubbles in some markets are
accompanied with drawdowns in others, both regionally and
between different asset classes, so, generally, investors have
two options: they can try to predict the ups and downs of
respective markets, which involves being able to withdraw
capital from one market or asset class and invest it in
another; or diversify investments between different markets
and asset classes.
The first strategy is a speculative one with a host of
pros and cons. The second, based on a statistically valid
and carefully selected set of asset classes, is much more
conservative and protective.
Our clients, especially those looking for a good risk-return
balance, like multi-asset funds, especially denominated in
currencies other than the US dollar or euro. We see a lot of
interest in both the Swiss franc and British pound at present.
At the same time we have always been sceptical of multi-
asset funds with strategies which target investments in
emerging markets.
For high-net-worth clients we can construct a tailored
portfolio of assets, which could include direct investments in
real estate or physical gold. Usually we advise our clients to
use several European multi-asset funds as long as they have
a good track record.
6. CITYWIRE GLOBAL | SEPTEMBER 20156
MULTI-ASSET > THE FUND SELECTORS
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G I A N P I E R O S T U R Z O
L O B N E K W E A LT H PA R T N E R S
G E N E V A G E N E V A
Historically, we have not had exposure to mixed-asset funds
because we find these difficult to fit into our investment philosophy.
Essentially, we are the ones making the discretionary calls and so feel
we are better placed than an external or third-party manager to be
allocating to various asset classes.
In my job, which covers both fund selection and also sitting on the
investment committee at the bank, we really try to take all the major
investment decisions, be they on region, asset class or fund managers.
For example, in fixed income, we prefer direct manager selection or
direct investment because of the transparency.
We can get clear visibility on the investment and make sure that
the duration and maturities being invested in are in keeping with
our overall investment philosophy. That is a problem with multi-
asset managers, as it becomes less clear and there could be a lot of
change going on within the fund’s internal allocations which is not
communicated to investors.
If we have to use mixed asset-type products it will be more in the
liquid alternatives market, where we have done a lot of work in multi-
strategy or funds of hedge funds. However, here, as with the long-only
offerings, we have a preference for those strategies where we can
directly see the investment, long/short equity is particularly popular.
Doing the job ourselves also allows us to focus on risk and
volatility. We are able to calibrate the mixture of assets, or managers,
to meet our own volatility requirements rather than being dependent
on a third party.
In terms of our overall allocations at present, we are more
focused on fixed income because that is likely to be volatile with the
movements of the Federal Reserve. We believe this will lead to a
significant impact on rates and we want to maintain a duration which
will be able to best deal with these headwinds.
Multi-asset funds definitely have a role within our asset allocation but
we cap this at 15% of the overall exposure. We like to include these
funds because we can locate those managers able to operate flexible
approaches, which reflects the same view we have in fixed income,
where we prefer unconstrained strategies.
We want managers who are able to respond to wider market
events in an appropriate way. We assess this very closely by looking at
how they have performed historically and how they have responded
to events in the past, both in terms of asset allocation or volatility
management.
We also favour managers who adopt some quant screening in their
process, but we like this to be combined with a discretionary overlay.
There are a lot of funds we like including the Carmignac Patrimoine
fund. We also favour the Invesco Balanced Risk Allocation fund, as
well as the M&G Dynamic Allocation fund and the Nordea Stable
Return and Oddo Optimal funds.
Closer to home we prefer the PBS Smart fund, which is run by some
of our counterparts here in Geneva at the Banque Pâris Bertrand
Sturdza. We essentially want managers that are very active and able
to allocate accordingly when the market changes.
These funds are also usually very benchmark agnostic, which is a
positive.
7. CITYWIREGLOBAL.COM 7
THE FUND SELECTORS < MULTI-ASSET
V A L E N T I N A M A D A M A
S Y M P H O N I A
T U R I N
We are currently using multi-asset funds because in our range of
multi-manager managed accounts we run two portfolios dedicated
to flexible strategies.
The first and most important managed account is invested in
strategies which usually have a significant participation in equity
markets. However, they also need to have the flexibility to reduce risk
and protect the portfolio in downside markets by investing in bonds,
cash or derivatives.
The risk/reward profile of these kinds of funds, with a range of
volatility between 6-10% is very interesting, because it allows fairly
risk-averse clients to participate in equity markets with a more
prudent approach and some downside protection.
We combine multi-asset funds with other strategies with a similar
risk profile, such as equity long/short and global macro to enhance
diversification. Examples of multi-asset funds we have as core
positions in our flexible portfolio include the MFS Prudent Wealth
fund run by Barnaby Wiener.
This is an absolute return fund with a value, bottom-up
investment process in its equity component and a flexible allocation
based on the relative valuation of equities, bonds and cash.
The aim of the fund is to outperform the global equity market
in the long run, but with the flexibility to reduce exposure if equity
valuation appears stretched.
The approach is very disciplined and patient. The portfolio
manager takes a very long-term view and prefers being
underinvested when he can’t find the right opportunities.
We are also monitoring new products, such as the Flossbach Von
Storch – Multiple Opportunities II fund. We are currently invested in
the company’s Global Opportunities fund, which has a more equity-
like profile and we also like Acatis Ganè.
The other portfolio in which we use mixed-asset funds is a total
return managed account comprised of different kinds of total return
strategies. The multi-asset funds we are using here usually have
lower volatility and a lower equity weighting.
For example, we like the Echiquier ARTY fund, which has a
flexible allocation between European equity and credit. We also
favour the Ruffer Total Return International fund, as an asset
allocation strategy which combines ‘greed’ with ‘fear’ assets. The
fund aims to preserve capital, while generating a positive return on
a 12-month horizon.
Using multi-asset investments we can better diversify risk
factors into our portfolios, because every portfolio manager
we select has a very broad mandate and his view, strategy and
allocation can be very different from his peers. Moreover, in this
market climate, where it’s difficult to find value in equity and bond
markets, finding managers with the ability to be really flexible is
becoming increasingly important.
8. CITYWIRE GLOBAL | SEPTEMBER 20158
MULTI-ASSET > THE FUND SELECTORS
Mixed-asset investors have
been trawling a wide range of
opportunities to balance risk and
reward. Rob Griffin reveals where
the top fund managers have lost
and gained
For Marcus Stahlhacke, manager of the Allianz Dynamic Multi Asset
Strategy fund, the decision to take an overweight position in global
equities and European bonds between the spring and autumn of last year
proved to be a masterstroke.
‘They were our most important performance drivers as both asset
classes did very well,’ he says. ‘We had a positive assessment of both
markets based on our analysis, so we simultaneously implemented
overweight positions of up to 125%.’
After initial gains, he moved to decrease risk, particularly on the bond
side in terms of both exposure and duration, while equities were reduced
to benchmark levels.
Listed private equity continued its long outperformance, which
benefited Stahlhacke’s fund, as did the strong showing from inflation-
linked bonds, which did well on the back of the ECB announcing its QE
programme and a changing outlook for inflation.
More disappointing was the performance of REITs, which is another
tool in the arsenal of multi-asset investment. ‘Low interest rates, the
global liquidity wave and the ongoing hunt for yield should have supported
REITs,’ says Stahlhacke. ‘Moreover, the fundamental conditions and
HUNTING GROUNDSHUNTING GROUNDS
9. CITYWIREGLOBAL.COM 9
THE FUND MANAGERS < MULTI-ASSET
economic phase were positive for the real estate
markets in most of the developed world.’
Unfortunately, this didn’t prove to be
the case. ‘REITs are highly leveraged, so an
increasing bond yield should have a negative
effect,’ he says. ‘The discussions about the rate
hike in the US were a headwind for the global
REIT market. Hence, after our position initially
returned 5%, we saw a decline in value during
spring and summer.’
As far as current positioning is concerned,
Stahlhacke’s asset allocation is currently
skewed towards risky assets, with a move back
towards an overweight in equities and other
opportunistic investments. ‘Bonds are below
their benchmark levels with a significantly
reduced duration of almost two years,’ he says.
‘We continue to hold listed private equity and
inflation-linked bonds both for diversification
benefits and return enhancement.’
THREE-PRONGED SUCCESS
Citywire AA-rated Paul Read, co-head of fixed
income, and one of the managers of the Invesco
Pan European High Income fund, credits a
number of areas for helping drive strong returns
over the last five years.
‘Three of the key drivers of the fund’s
performance have been exposure to
subordinated bank debt, high yield and
equities,’ says Read, who is ranked first and
third over three and five years respectively in
the Mixed Assets – Conservative sector, see
tables page 18. ‘In late 2011, subordinated bank
debt represented a particularly compelling
opportunity.’
At that time there were significant regulatory
changes being agreed that the Invesco team
felt would increase the creditworthiness of
banks. ‘Banks were themselves also taking big
steps to repair their balance sheets by raising
capital and increasing liquidity,’ says Read.
‘Through 2012 the market started to price in
this more supportive backdrop with bank bonds
rallying strongly, which benefited our exposure
to the sector.’
The period of market stress during 2011,
that arose from concerns in the eurozone and
led to widening spreads, was used to increase
the fund’s allocation to high yield. Exposure to
high yield rated bonds, including subordinated
financials, was raised to around 55%.
‘This meant we were well placed to capture
the strong period of spread contraction through
2012,’ says Read. ‘As value became realised
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
in the sector, we took profits raising liquidity
and also increasing exposure to equities, as
prospects for this asset class improved. This
equity exposure then drove returns through
2013.’
Over the past few years, Read and the
team have taken the view that bond markets
are offering declining value, with interest
rate risk in particular providing a poor level of
compensation for the risk. As a result, they
have maintained a duration position in the fund
that at times has been significantly below that
of the broader market.
‘Government bond yields have, however,
continued to fall during this time, meaning
our duration position has acted as a drag on
performance,’ he says. ‘While this is clearly
disappointing we think it is right to continue
to base positioning on the balance of risk and
reward rather than chase returns.’
The benefits of this approach are well
illustrated by the performance of the bund
market year-to-date. From January through to
mid-April the bund seemed to be trading one
way with the 10-year class almost reaching 0%
by mid-April, and Read concedes that during
this period the low duration stance constrained
performance.
‘However, between mid-April and early June
the 10-year bund yield increased to nearly 1%,
which in capital terms would have represented
more than a 9% loss with virtually no income to
compensate,’ he says.
Current positioning in the fund is defensive,
which reflects the team’s view that there is only
limited value in bond markets. Even so, there
are still some pockets of value that they are
seeking to exploit.
‘We now have around a 25% allocation to
high yield within which we are biased toward
higher quality bonds that we consider unlikely
to default,’ he says. ‘The majority of these
bonds are rated BB and B.’
Read also highlights a relatively high
exposure to the financial sector, particularly
subordinated bonds of national champion banks
Top Multi-Asset Aggressive managers over 3 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Najib Nakad 1/215 78.65 1.06 HOF Hoorneman Value Fund
Stefan Nixel 2/215 63.76 1.05
Allianz Strategy 75 - CT - EUR, Allianz
Dynamic Multi Asset Strategy 75 - I - EUR
Michael Winker 3/215 57.69 1.03 Flaggschiff Dynamisch
Eva Balligand 4/215 61.47 0.93 Reactif
Michael Nipp 5/215 55.57 0.71 UniStrategie: Dynamisch
Average Manager 39.24
Top Multi-Asset Aggressive managers over 5 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Najib Nakad 1/158 76.75 0.48 HOF Hoorneman Value Fund
Michael Winker 2/158 66.45 0.43 Flaggschiff Dynamisch
François Badelon 3/158 81.08 0.18 Sextant Grand Large A
John Løvig Nielsen 4/158 50.68 0.07 Danske Invest Allocation Dynamic A
Michael Nipp 5/158 69.31 0.06 UniStrategie: Dynamisch
Average Manager 42.50
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
10. CITYWIRE GLOBAL | SEPTEMBER 201510
MULTI-ASSET > THE FUND MANAGERS
treat certain hybrid instruments.
‘After comparing the expected
returns with equities on a five-year
basis, the evidence was pretty
conclusive in terms of the
hybrid instruments
having a much
more favourable
risk return profile
in that sector.
‘We
believed the sector would continue to heal and
so put on a fairly large position,’ he says. ‘That
worked out very well.’
The fund has also had a strategic position in
Hong Kong in order to get that all-important
exposure to China. ‘This was to profit from
the growth of the Chinese middle class so our
exposure is mainly to consumer staples and
consumer discretionary,’ he says. ‘It’s a position
we’ve been increasing since 2012/13 and it’s still
one of the world’s cheaper markets.’
Although Nakad agrees that markets have
been very volatile over the past few years, he
maintains that the investment process followed
hasn’t changed in two decades.
‘We are value investors, so we look for solid
companies with reliable cash flows to invest in
at a reasonable valuation,’ he says. ‘Our bond
position is usually fairly aggressive compared
with an average mixed fund, in the sense that
generally the credit risk there is high yield, so
if we can find equity-type returns in the bond
market then we will take that position.’
On the equity side, the team is looking for
solid businesses with a good track record that
for some reason have become cheap. What’s
particularly important when these positions are
being examined is that there’s not too much
leverage, he says.
Looking ahead, Nakad believes the key to
success over the next few years will be risk
management. ‘A lot of things are hanging over
markets right now such as valuations, the US
interest rate cycle turning up, and the effect on
emerging markets,’ he says.
The European economy, for example, is
finally picking up because the banking system
is taking a long time to recover, while the drop
in the oil price will continue to help consumer
spending around the world.
‘We’re more focused on the downside
risk and being careful at the moment,’
Nakad says. ‘I’m not saying we’re
expecting a crash but just that we’re
not seeing that many great deals out
there so we’d rather be careful.’
ASTUTE FUND PICKING
External fund selection,
particularly as far as
European equity funds
are concerned, has
been a boost for
the UniStrategie:
Dynamisch fund
that pay a higher level of income than senior
issuance. The increasing regulatory pressures
require banks to strengthen their balance
sheets and this has benefited such bonds.
‘We also hold exposure to hybrid bonds
across other industries where we think the
issuer has a strong balance sheet and where
we are being paid a relatively attractive level of
income,’ he says. ‘Typically, these holdings are
focused on utility and telecom companies.’
WEIGHING THE RISKS
Subordinated financials have also been the
main driver of performance for the HOF
Hoorneman Value Fund fund, according to its
manager, AA-rated Najib Nakad. ‘We built up a
large exposure in 2009 to subordinated bonds
in systemic north western European insurers
and banks,’ says Nakad, who is ranked first
over three and five years in the Mixed Assets –
Aggressive sector. ‘We looked at the landscape
after the financial crisis and what we expected
the regulators would do and how they would
‘We think it is right to continue
to base positioning on the
balance of risk and reward
rather than chase returns’
PAUL READ
INVESCO PERPETUAL
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
Top Multi-Asset Balanced managers over 3 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Paul Gagey 1/320 51.42 1.16 Aviva Patrimoine
Philippe Frisanco 2/320 12.98 1.11 Transatlantique Fund
Rudolf Gattringer 3/320 50.52 1.06 KEPLER Vorsorge Mixfonds A
Fátima Só 4/320 56.87 0.99
Active Allocation Fd Global Active Alloc
I Cap
Jan Bernhard 5/320 45.96 0.92 Fonds Assecura I - AT - EUR
Average Manager 28.23
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
Top Multi-Asset Balanced managers over 5 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Paul Gagey 1/245 58.25 0.67 Aviva Patrimoine
Petri Tuutti 2/245 68.02 0.57 VISIO Allocator
Rudolf Gattringer 3/245 62.15 0.55 KEPLER Vorsorge Mixfonds A
Philippe Frisanco 4/245 18.03 0.54 Transatlantique Fund
Luc De Ridder 5/245 38.76 0.41 Publitop Growth I Cap
Average Manager 31.27
ybrid instruments.
aring the expected
uities on a five-year
ence was pretty
rms of the
ents
e
file
in the oil price will continue to hel
spending around the world.
‘We’re more focused on t
risk and being careful at th
Nakad says. ‘I’m not sayi
expecting a crash but just
not seeing that many gre
there so we’d rather be ca
ASTUTE FUND PICKI
External fund s
particularly
European
are conce
been a
the U
Dy
n chase returns
TUAL
11. SPONSORED STATEMENT
The rapidly changing nature of the investment
landscape and unpredictable levels of correlation
between traditional asset classes has seen
increased investor demand for portfolios that
combine genuine diversification and controlled
levels of volatility, as well as deliver alpha.
Invesco’s Multi Asset team has created an
unconstrained approach to investing, which it
believes can generate equity-like returns with
less than half the volatility of global equities.
Convinced that the only way to achieve true
diversification is to break away from asset class
constraints, the team instead focuses on finding
attractive investment ideas for its Invesco Global
Targeted Returns Fund, which aims to achieve a
gross return target of 5 percent p.a. above
3-month EURIBOR over a rolling three-year period,
with less than half the volatility of global equities*.
An unconstrained approach
The team’s investment approach is to find good,
long-term investment ideas, which can be
sourced from any asset class, anywhere in the
world. The team can then implement the ideas
using a wide range of traditional and alternative
investment instruments, including derivatives.
For example, the fund views volatility as a
source of potential return and as a portfolio
diversifier. In this respect, the team currently
implements an idea based on the relative pricing
of the volatility of the Australian dollar (AUD) and
the US dollar (USD). As a global reserve currency,
the USD is inherently more stable than the AUD,
a commodity currency of a much smaller
economy. However, the market is currently pricing
Australian dollar volatility at only a very small
premium to the volatility of the US dollar.
Invesco’s Multi Asset team believes a good way
to benefit from the difference is to buy the
volatility of the AUD and sell the volatility of the
USD. To do that, it can go long volatility in the
AUD, Japanese yen cross and, on the other side,
it can short volatility on the USD, Japanese yen
cross. The trade is anchored around the
Japanese yen but at the core it is about which
currency – AUD or USD – the team expects to be
more volatile over the next three years.
Risk-based fund management
While its approach to sourcing investment ideas
is unconstrained, the team applies robust risk
management tools in order to bring the ideas
together into a single, risk-managed portfolio.
The key is how all the ideas work together and
importantly how they interact with each other to
increase diversification and reduce the overall
risk of the fund.
Blending extensive quantitative analysis with
qualitative judgment to prevent the strategy
being guided by any one dominant behavioural
bias, the team focuses on the risk-return profile
of each idea and how to combine the ideas into
a single, risk-managed portfolio to achieve the
fund’s return and volatility targets over time.
Each idea must earn its place in the portfolio
and is assessed against the team’s central
economic outlook; the team also tests how the
portfolio and each idea would behave under
various historical, as well as hypothetical,
extreme scenarios. That way, the fund is
cushioned in negative market environments and
– at the same time – well positioned to
participate in positive markets.
To keep overall portfolio risk in check, the team
rigorously assesses and manages various risk
measures including total portfolio volatility, the risk
of each investment idea, asset type risk, market
factor risk and geographical risk. An ongoing
review process ensures that the underlying drivers
of each idea and its return potential are still intact.
The return projection for each idea needs to be
positive once any cost of managing the downside
risk – for example, through put options – has been
taken into account.
The way the fund is designed, it can achieve
its target return if most of its ideas work most of
the time. And, despite difficult markets since the
fund’s launch in December 2013, it remains on
track to achieve its return and volatility targets,
demonstrating the power of ideas and a truly
diversified portfolio.
INVESCO GLOBAL TARGETED RETURNS FUND –
HARNESSING THE POWER OF IDEAS
Important information:This advertisement is exclusively for use by Professional Clients and Financial Advisers in Austria, Belgium, Germany, Greece, Finland, France, Italy, Luxembourg, The
Netherlands, Norway, Portugal, Spain, Sweden and Qualified Investors in Switzerland only. This advertisement is by way of information only and no financial advice. Where Invesco has expressed
views and opinions, these may change. The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full
amount invested. The fund will invest in derivatives (complex instruments) which will be significantly leveraged resulting in large fluctuations in the value of the fund. The fund may hold debt
instruments which are of lower credit quality and may result in large fluctuations of the value of the fund. The fund may be exposed to counterparty risk should an entity with which the fund does
business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management. For more information on this fund, please refer to
the most up to date relevant fund, share class-specific Key Investor Information Documents, the latest Annual or Interim Reports and the latest Prospectus. Whilst great care has been taken to
ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. Asset management
services are provided by Invesco in accordance with appropriate local legislation and regulations. The fund is available only in jurisdictions where its promotion and sale is permitted. Please check
the most recent version of the fund prospectus in relation to the criteria for the individual share classes and contact your local Invesco office for full details of the fund registration status in your
jurisdiction. This document is issued in Germany by Invesco Asset Management Deutschland GmbH, An der Welle 5, D-60322 Frankfurt am Main. This document is issued in Austria by Invesco
Asset Management Österreich GmbH, Rotenturmstrasse 16-18, A-1010 Wien and in Switzerland by Invesco Asset Management (Schweiz) AG, Talacker 34, CH-8001 Zürich, who acts as a
representative for the funds distributed in Switzerland. Paying agent for the fund distributed in Switzerland: BNP PARIBAS SECURITIES SERVICES, Paris, succursale de Zurich, Selnaustrasse 16,
CH-8002 Zürich. This fund is domiciled in Luxembourg. CE XXXX/2015
David Millar
Head of Multi Asset Team
Henley-on-Thames
* There is no guarantee that these aims will be achieved.
12. CITYWIRE GLOBAL | SEPTEMBER 201512
MULTI-ASSET > THE FUND MANAGERS
managed by A-rated Michael Nipp over the last
few years.
‘It has worked out quite well and added
significant alpha to our fund,’ says Nipp, who
is ranked fifth over three and five years in the
Mixed Assets – Aggressive sector. ‘Evaluating
external funds on a quantitative and qualitative
basis is a key pillar of our investment process.’
From a regional perspective, a significant
position in European equities, especially German
ones, and Japanese equities since the end of
2014 had a positive effect. This was at the
expense of more defensive markets in Europe,
such as Switzerland, the UK and the US.
‘Being aware of the full spectrum of
the credit universe, we captured positive
performance from being invested in the global
high yield segment and in hybrids,’ he says. ‘We
also had significant long positions in the US
dollar during 2014 and 2015.’
Currently, the fund has around 80%
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
equity, 22% credit and 18% government
bond exposure, along with some single-digit
exposure in total return funds.
‘From an equity point of view, we
like the idea of using call options on
the S&P 500, DAX and Euro Stoxx
50 in the current environment of
very low expected volatility,’ Nipp
says. ‘We still like our holding in
short-duration US high yield which
offers a coupon of around 5%, and our
hybrid investments, which offer a
decent yield compared with
German government bonds
for example.’
BROAD AND BALANCED
Diversification has been
the name of the game for
A-rated Rudolf Gattringer,
manager of KEPLER
Vorsorge Mixfonds A, who is ranked third over
three and five years in the Mixed Assets –
Balanced sector. Rather than a handful of key
drivers, he suggests a diverse exposure across
asset classes has been pivotal.
‘At the moment there are around 170 different
bonds and about 110 equity names in the
portfolio,’ he says. ‘This structure was also very
similar in the past so there haven’t been huge
bets underpinning our strong performance.’
Gattringer names UnitedHealth, a healthcare
stock in the US as one standout performer.
‘We held this company for several years and
sold it after an excellent performance,’ he says.
As far as current positioning is concerned,
Gattringer says that asset allocation calls
are made on three to six-month views
and reviewed monthly. Presently,
he is neutral on bonds, slightly
underweight equities and slightly
overweight cash.
‘In the case of equities we are
overweight Japan and emerging
markets, and underweight
Continental Europe and
North America,’ he
says. ‘Our weightings
come from bottom-
up selection, such
as Japanese equities
being attractive in
both valuation
and quality.’
Top Multi-Asset Conservative managers over 3 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Stephanie
Butcher
1/343 44.82 2.14 Invesco Pan European High Income A Acc EUR
Paul Causer 1/343 44.82 2.14 Invesco Pan European High Income A Acc EUR
Paul Read 1/343 44.82 2.14 Invesco Pan European High Income A Acc EUR
Alexander John
Mark Michahelles
4/343 28.17 1.58 Nextam Partners Obbligazionario Misto
Svilen Katzarski 5/343 59.51 1.35
DEGUSSA BANK-UNIVERSAL-
RENTENFONDS
Average Manager 17.48
CITYWIRE MANAGER RATIO: This reflects how much ‘added value’ in terms of outperformance against the benchmark the fund
manager delivers for each unit of risk assumed, where risk is defined as not mirroring the index’s return. It ties together the fund
manager’s personal career history with the Information Ratio of the underlying funds
Top Multi-Asset Conservative managers over 5 years
Name Rank
Total
Return
(% EUR)
Manager
Ratio
Contributing Fund Rating
Tina Rönnholm 1/256 24.03 1.05 SEB 20 B
Manuel Miguel
Sanabria
2/256 62.66 0.78 Bankia Fonduxo, FI
Paul Causer 3/256 66.53 0.71 Invesco Pan European High Income A Acc EUR
Paul Read 3/256 66.53 0.71 Invesco Pan European High Income A Acc EUR
David Dias 5/256 64.78 0.67 NB PPR
Average Manager 20.14
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13. CITYWIREGLOBAL.COM 13
THE VIEW AHEAD < MULTI-ASSET
Crossing multiple asset classes
can leave investors open to shocks
surfacing in surprise areas.
Rob Griffin reports on how
investors are sheltering from
potential storms
14. CITYWIRE GLOBAL | SEPTEMBER 201514
MULTI-ASSET > THE VIEW AHEAD
‘The taper tantrum of 2013
and the bond rout/EMD sell-
off earlier this year gave us a
flavour of the type of market
reaction we can expect in this
case, particularly if growth
elsewhere is still weak’
ANNA STUPNYTSKA
FIDELITY WORLDWIDE INVESTMENT
These are challenging times for multi-asset
investors. Thanks to the extreme effects of
financial stimulation, economic uncertainty,
stock market volatility, and political wrangling,
there’s no clear consensus as to where they
should be focusing attention.
When you consider that most areas have
provided healthy returns since bottoming out
in 2009, now the task is seeking out which
have the most potential, says David Vickers,
managing director of multi-assets at Russell
Investments.
‘We’re struggling to find value in any asset
market and have for a long while,’ he says. ‘It’s
one of the most difficult periods as a multi-
asset manager to run money because most
markets are pricing above fair value.’
Despite being seven years into a bull run,
never before have we had zero rates across the
globe this late in the day, says Vickers. Not only
are defensive assets looking expensive at a time
when they are normally a lot cheaper but there
is currently no margin for safety.
‘A lot of factors are making me
uncomfortable, such as the lack of opportunities
and the low return expectations for all asset
classes,’ he says. ‘Economic growth around the
world isn’t abundantly healthy despite the fiscal
stimulus packages being pumped in, so one has
to be slightly concerned about what will happen
when that starts to be removed.’
Of course, a crucial element is the fact
that many of the economic forces that are
influencing global markets are without
precedent, he says. As a result no one knows
for sure what the longer-term impact will be
of issues such as moves by central banks and
regulatory restrictions.
TWO-SPEED MARKETS
Another key problem is that the world’s
financial markets are at different stages of the
economic cycle, says Paul Read, co-head of fixed
interest at Invesco Perpetual.
‘The US and UK are expected to raise interest
rates, while Europe remains at the policy
loosening stage with the ECB only recently
reaffirming its commitment to implement the
QE programme in full,’ he says.
As a result, US dollar and sterling-
denominated bond yields are currently higher
than in Europe. ‘In view of this, we have
increased exposure to US dollar-denominated
bonds where we are able to pick up relatively
attractive yields in large issues across a range of
very strong investment-grade names along with
some high yield opportunities,’ he says.
The outlook for global interest rates is vitally
important, says to Anna Stupnytska, global
economist at Fidelity Worldwide Investment,
who believes the stance of the Fed means it
remains high up on the list of potential risks for
investors.
‘With the first rate hike looming, the pace of
growth improvement in the US is key to watch
over the next few months,’ she says. ‘I believe
acceleration will be gradual, allowing the Fed to
stay on hold at least until the end of the year
and then to tighten at a measured pace.’
However, she points out that stronger-than-
expected signs of growth and/or inflation could
accelerate the pace of hikes. ‘The taper tantrum
of 2013 and the bond rout/EMD sell-off earlier
this year gave us a flavour of the type of market
reaction we can expect in this case, particularly
if growth elsewhere is still weak,’ she says.
There is no shortage of risks facing mixed
asset investors but arguably the most
dangerous are issues that people are not yet
considering could pose a threat to portfolios,
says Maria Municchi, an investment specialist
for multi-asset at M&G.
‘The real risk for an investment portfolio is
usually one you don’t expect,’ she says. ‘We’re
15. CITYWIREGLOBAL.COM 15
THE VIEW AHEAD < MULTI-ASSET
aware of many risks, such as US interest rates
and the Greek situation, which is why we have
to follow our own strategy and position the
portfolio on the basis of valuations.’
Such calls, she points out, are not easy to
make at the moment with very little in the way
of value on offer from the fixed income space,
aside from some relatively attractive emerging
market areas, such as Mexican bonds.
‘The most attractive opportunities are still
to be found within the equity space, although
these markets have been enjoying strong
performances so we need to be very selective
on which ones we are going to position
ourselves in,’ she says.
This is where regional and sector exposure
comes into play.
‘Within equities our preference is for some
of the European markets where we see that
valuations are still attractive on both an
absolute and relative basis, but also where
profits have remained relatively depressed
when compared with historic levels,’ she says.
As long as we continue to see an
improvement in fundamentals – and recent
data concerning company earnings is positive –
Municchi believes there will be upside potential,
particularly within peripheral European markets
such as Spain and Italy.
‘On a sector basis we’ve had a preference for
US banks which are interesting because they
are attractive from a valuation perspective,’
she says. ‘As well as a nice diversifier for the
portfolio, these also provide exposure to a
relatively attractive asset
class.’
The M&G approach is to
invest in a number of stocks
within this area – currently
the firm has exposure to 15
companies. ‘We prefer exposure to
the sector as a whole rather than
specifically to a named bank,’ she
says.
Emerging markets is another
area that Municchi is monitoring
closely. ‘Although some
valuations might look relatively
attractive, we have to be careful about the
fundamentals,’ she says. ‘That’s why we’re a bit
cautious on exposure at the moment.’
EYING EQUITIES
Nick Samouilhan, multi-asset fund manager
at Aviva Investors, echoes the consensus
of preferring equities. ‘It’s not that we find
equities particularly cheap, it’s just that you
can make the case for them being fairly valued,
while fixed income is very expensive,’ he says.
Investors also need to accept that they
will receive lower absolute returns from
equities than they have been used to in the
past as a result of valuations, he says. ‘We
are overweight Europe and Japan,’ he says.
‘Although the outlook for these regions and
economies is poor, the expectations are even
worse and that means it’s quite easy to surprise
on the upside.’
Samouilhan is also keen to emphasise
that the amount of economic backing – or
otherwise – on offer in different economies
plays its part. ‘The Bank of Japan and the ECB
are very supportive of boosting growth,’ he
says. ‘Contrast this with the UK and US where
economic growth is the exact opposite – very
robust and improving – but it also happens to
be largely in the price which makes it difficult to
beat those high expectations.’
As no-one has a crystal ball, anyone looking
to invest over the coming decade would be
wise to embrace diversification – with the vast
majority in equities, says Julian Chillingworth,
CIO at Rathbones .
He suggests exposure to the UK, the US,
Europe, as well as selectively to China and the
rest of Asia makes sense. Japan, meanwhile, is
also an increasingly attractive prospect.
‘We think the Japanese economy is
undergoing a renaissance,’ he says. ‘This is
partly due to the fact that they have realised
demographics are against them so they need to
do something to boost consumption, push up
wages and encourage more women into work.’
Japanese corporations have also woken
up, he says. ‘They realise they need to give
shareholders some return on their investments
and this has led to better corporate governance.
Japan is a good economy in the broadest
sense of the word and consequently we want
exposure to it.’
REVISITING COMMODITIES
So how about other asset classes? Well, they
may have suffered devastating falls in recent
months but Alastair Baker, multi-asset fund
manager at Schroders, insists that it’s wrong
to automatically discount commodities from
portfolios.
‘They have moved from an asset class that
we have more or less avoided for the past four
‘We are overweight Europe and
Japan. Although the outlook for
these regions and economies is
poor, the expectations are even
worse and that means it’s quite
easy to surprise on the upside’
NICK SAMOUILHAN
AVIVA INVESTORS
16. CITYWIRE GLOBAL | SEPTEMBER 201516
MULTI-ASSET > THE VIEW AHEAD
years to one that we are now considering more
carefully,’ he says. ‘They bring something new
to the portfolio as they are now being driven by
the idiosyncratic fundamentals of supply and
demand in the underlying markets.’
This makes them behave very differently to
equities and bonds, which may help to control
levels of portfolio risk. ‘It is the return potential
where there remains the greatest uncertainty.
Without supply discipline and stronger global
growth, commodities could continue to languish
at or below the current prices,’ he says.
However, the longer low prices persist and
the less investment occurs, the more likely
prices are to rise in the future. ‘Energy markets
look the most interesting to us as prices have
fallen dramatically and investment has been cut
back a lot,’ he says.
HEDGING YOUR BETS
Investors are also considering a full range
of financial instruments when constructing
portfolios. For example, Vadim Zlotnikov, chief
market strategist and co-head of multi-asset
solutions at AllianceBernstein, says exposure
to risk assets has been modestly reduced at the
same time as the of the equity exposure has
been implemented using call options.
‘This will serve to automatically reduce our
risk exposure if the market declines,’ he says.
‘Likewise, we used put options to buy downside
protection on oil prices.’
He also recommends maintaining what he
describes as a ‘modestly pro-cyclical stance’,
based on the assumption of a rebound in US
small business and household development.
‘Globally we see relatively few deep-value
opportunities, but the Greek crisis is starting to
cause valuation spreads in Europe to widen,’ he
says. ‘This is the region in which we have the
large value exposure. The key macro variable to
monitor is the continuation of credit creation,
which is needed to sustain the economic
recovery.’
Although investing in this climate is difficult,
there are still some broad conclusions that
can be drawn, according to Pierre Sarrau,
deputy chief investment officer of multi-asset
strategies at BlackRock.
Global growth should strengthen thanks to
several tailwinds, including lower oil prices that
provide a fiscal stimulus, he says. In addition,
a recovery is under way in the major advanced
economies.
‘Even in Europe, where the crisis has
left a toxic legacy of high leverage and
unemployment, there are certain tailwinds,
including the impact of quantitative easing,
healthier banks, fiscal policy that is no longer
contractionary, and structural reforms.’
What most people want to see over the
coming months is a continuation of decent
earnings growth from companies that will give
them increased optimism for the future, says
Vickers at Russell Investments.
‘There’s not much room for error at the
moment so you need more good news to
support valuations at these levels,’ he says.
‘Good, strong economic growth in Europe, the
continuation of moderate growth in the US, and
a softish landing in China would be great.’
‘Within equities our preference
is for some of the European
markets where we see that
valuations are still attractive
on both an absolute and
relative basis, but also
where profits have remained
relatively depressed when
compared with historic levels
MARIA MUNICCHI
M&G
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