The past three years have been monumental for a range of reasons. To name a few, the world has dealt with the UK leaving the EU, a heavily contested US presidential election as well as increased competition for global leadership between China and America, and finally, a global pandemic. As managers, we have been navigating consistent volatile markets and low interest rate environments, as well as quickly responding to evolving investor preferences. 
When we launched the Universal MAP range three years ago in response to the changing investor appetite for low-cost, no one could have anticipated the scale of global events we would see in 2020. But one thing has remained constant: our belief in the importance of active management in the face of uncertainty.
This has certainly been proven true in the wake of the global pandemic, with market volatility providing new opportunities to generate alpha and an increased need for regular portfolio management.
As a team, the three most important pillars of our investment strategy are strategic asset allocation, stock selection and tactical risk mitigation and we regularly consider investments in line with each.
Below, are some of the most significant active asset allocation calls we made in 2020.
Strategic Asset Allocation – Changing government bonds exposure and regional equity allocations
In mid-to-late 2019 we removed inflation-linked bonds from our portfolios as they had become overvalued with a negative return expectation. In 2020 through the early stages of the pandemic crisis inflation-linked bonds lagged nominal government bonds, as yields on gilts went to all-time lows. As such, we transferred some of our holdings back to inflation-linked bonds which subsequently have performed better.
Source: BMO GAM
For most of the year we have been favouring global equities, in particular the US, over the UK which has been very positive for the fund. However, at the end of the third quarter we viewed UK equities as attractively valued relative to global equities and switched some exposure. The UK had been unloved by investors all year, in part due to its sectoral make-up with its heavy reliance on commodities and services, on top of Brexit headwinds. We viewed the market expectation over Brexit trade talks as being overly pessimistic and the chance of a successful vaccine being found, under anticipated. This has worked out very well for our investors especially when incorporating currency exposures as sterling has also got significantly stronger in the fourth quarter.
Source: BMO GAM
Tactical risk mitigation
Tactical trading is an important facet of the funds as this allows us to navigate short term events where the market is not trading off long term fundamentals. How the events of 2020 have unfolded demonstrates the benefits of an active tactical approach.
As Covid-19 spread across Europe the initial tactical trade was to reduce equity from our previous overweight position. Importantly we bought back into equity positions at much lower positions to ensure that we were back at full exposure before the end of March.
Source: BMO GAM
Within credit we exited high yield completely and moved into cash following the announcement of the price war between Saudi Arabia and Russia. This saved the portfolio from experiencing further losses as corporate bond prices tumbled. When markets had resumed some semblance of order we spent some of our excess cash on US investment-grade bonds which have done very well on the back of the general recovery and Federal Reserve’s decision to include these bonds into their asset purchase program.
Keith Balmer is director and product specialist within the multi-asset investment team at BMO Global Asset Management. The views expressed above are his own and should not be taken as investment advice.