Asset Allocation - An Alternative Outlook
Investment Communication Manager, Rachael Dunbar-Nasmith, outlines the benefit of considering alternative asset classes over more 'traditional' multi asset portfolios and how Cornelian's unconstrained approach can help deliver real value for investors.
Multi asset funds have exploded in popularity over recent years, and have increasingly become a mainstay within advisers’ centralised investment propositions. However, the changing macroeconomic environment and recent uptick in market volatility has presented choppy waters for these fund managers to now navigate their way through. As we look forward, it becomes crucially important to review the mix of asset classes held in these funds, and consider if they are fit for the future.
Whilst monetary policy within developed economies has been supportive for both traditional fixed income and equities over the past decade, the global tailwind for these asset classes is coming to an end. This, combined with the return of volatility to markets and an increase in asset class correlations, highlights the need to carefully consider asset allocation strategy in light of the challenges that those multi asset portfolios solely investing in traditional fixed income and equities may now face.
Looking forward it is clear that alternative asset classes in the expanded investment universe can be beneficial additions to ‘traditional’ multi asset portfolios when it comes to improving diversification and delivering real returns for clients.
Chart 1 displays how we can put this approach into practice, comparing our SVS Cornelian Managed Growth Fund asset allocation (mapped to Defatqto Engage Risk Level 6) with an illustrative example of a common mid-risk multi asset allocation:
The above chart clearly highlights the improved diversification of the SVS Cornelian Managed Growth Fund, which complements traditional equities and fixed income with flexible strategic bond funds, and specialist credit offering attractive yields. Liquid vehicles investing in infrastructure and property could offer access to both an illiquidity premium and an inflation hedge, depending on the asset. An allocation to gold can provide portfolio ‘insurance’ in risk-off environments, whilst carefully constructed absolute return exposure can improve diversification of returns.
The good news is that a number of these asset classes are becoming readily accessible to more investors, for example via liquid investment trusts or specialist pooled products. The ability to look beyond equities and traditional fixed income will depend on the manager’s knowledge and experience of these more complex areas of investment, which can require much more rigorous due diligence. As with all investment selection, thorough analysis and understanding of the associated key drivers and risk factors is essential.
The important thing is to select an investment manager with the expertise and capability to access this expanded opportunity set. At Cornelian, we follow an unconstrained approach to asset allocation, and invest in a wide range of asset classes. We believe that this truly flexible approach allows us to construct the optimal mix of assets in order to deliver real value for investors in our Risk Managed Fund Range.
Senior Manager, Investment & Communication