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Minimising risk with multi-asset

01 June 2023

Multi-asset investing means different things to different people.

By Darius McDermott,

Chelsea Financial Services

Now is a time of great uncertainty. Interest rates are high, and we don’t know if they are going to come down. Inflation is high, and we don’t know if it is under control. Recession could be on the cards. It’s not clear if house prices will fall, or how much corporate debt will fail. Basically, no one arena is looking strong. One answer is to hedge your bets and invest with a view to them all.

Multi-asset investing means different things to different people. To John Chatfeild-Roberts, long standing fund manager of the Jupiter Merlin Income Portfolio, it means “trying to identify and use the best fund managers, wherever they work, to generate the best possible returns within each of our funds using underlying assets that are equities, bonds, property, commodities and cash”.

Is now a good time to invest that way? History would suggest the level of diversification multi-asset offers works well in a lot of economic environments, even tricky ones like now – with the right managers running the money of course.

For example, since the team running the Jupiter Merlin funds came together in October 1999, investors in the Jupiter Merlin Growth Portfolio have made over 5x their money, while the sector average has merely doubled it.

And those nearly 25 years have seen at least as much trouble as we’re in now; investors had to cope with the Dotcom bubble, 9/11, the Iraq War, the Global Financial Crisis when the FTSE 100 fell nearly 50%, the Euro Crisis, the Brexit vote, and of course Covid.

“Investment is a long-term game and we believe that investing with the best money managers in a diversified portfolio is a smart thing to do, whatever the investing weather,” said John.

Adaptability is the key to survival in changing times. We have, of course, recently felt the great rotation from ‘growth’ to ‘value’ stocks taking the ascendancy. From being much more growth than value-focused for many years before ‘Vaccine Monday’ in 2020, the Merlin team have since pivoted the portfolios towards having a majority in value oriented funds from that point on.

John said: “We like to own managers who hold companies that have strong balance sheets so that when economic conditions become tougher, they are the ones that can take advantage of the cheap prices of companies on offer and the travails of their competitors”.

Ninety One’s Global Income Opportunities is another multi-asset fund that looks to take advantage of changing circumstances its manager sees around the whole world. Iain Cunningham, co-head of multi-asset growth at the company has some views about where to invest on that basis in the current climate.

“We believe we’re in the process of transitioning from the prior financial cycle to the next, which will likely require a more active and flexible approach across asset classes,” he said.

Due to increasing geopolitical risks and resulting deglobalisation, a material capital expenditure cycle to decarbonise, and an end to the US household deleveraging cycle, Iain sees a very different environment for investing over the next decade versus the prior one, where two primary forces remain underappreciated by financial markets.

“The first being the extent of the coming slowdown in the US and Europe as these economies look set to suffer the consequences of one of the largest and most rapid hiking cycles in many decades,” he said, viewing a central scenario as a developed world recession later this year.

“The second,” he added, “being the prospect for recovery in China after the country experienced recessionary conditions last year”. Ninety One’s multi-asset managers are positioning accordingly in response to these factors.

Other forces are also at work. Climate change is real and arrives with risks that will affect the entire investment universe. It also brings opportunities. The multi-asset Liontrust Sustainable Future Managed fund investment process seeks to generate strong returns from investing in companies aiming to deliver profits through positive social and environmental impacts.

To do this, it examines the world through the prism of three mega trends; better resource efficiency (cleaner); improved health (healthier); and greater safety and resilience (safer), then 20 themes within these.

“We invest in well-run companies whose products and operations capitalise on the transformative changes we have identified, may benefit financially from them and score well on environmental, social and governance (ESG), business fundamentals and valuation,” Peter Michaelis, head of the Liontrust Sustainable Investment team, said. Identifying these powerful themes and investing in exposed companies can, he believes, make for attractive and sustainable investments.

Today’s markets are fast-moving and ever more complex, thanks to technological advances and an increasingly connected world. This means it is important to have an investment approach that cuts through the noise and responds to market nuances, investing in a diversified range of asset classes, styles and funds as different scenarios play out. Multi-asset funds offer a good solution to do just that.

Darius McDermott is manging director of Chelsea Financial Services & FundCalibre. The views expressed above should not be taken as investment advice.

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