Building portfolios to address the fear of uncertainty
As the past decade has been characterised by uncertainty and volatility, investors are understandably keen to build portfolios that remove some risk, while still delivering an attractive return. Achieving the right balance with appropriate levels of diversification is, however, no easy task, particularly when markets can still be highly unpredictable. The solution, according to Peter Fitzgerald, Head of Multi-assets at Aviva Investors, is to cut through the complexity of the market by opting for an outcomes-based fund that aims to provide a good return irrespective of market conditions.
“As a big global company, Aviva Investors benefits from great resources, significant depth and breadth of research and access to information from the best providers out there,” Mr Fitzgerald says. “We accept, though, that even with all that in our favour, we will be wrong at times. Indeed, the first statement on the promotional material for the portfolio is, ‘we built the fund as nobody can predict the future’.
“What we can do, however, is utilise all of our resources to build a multi-strategy proposition that has components to directly mitigate risk and is rigorously stress-tested with the aim of ensuring that it can deliver the returns our investors anticipate, no matter what. We want to help investors cut through all of the uncertainty and complexity inherent in the market. We understand what investors want is steady and predictable performance.”
In Mr Fitzgerald’s view, people tend to misunderstand what risk actually means, focusing too much on volatility, without fully considering what is actually going on within their investments. With a multi-layer approach to risk management, the portfolios take a more sophisticated view of risk and deal with it in an efficient way so clients no longer have to worry about it.
He says: “If we look at markets right now, they are not moving very much and so volatility is quite low. People might say it is low risk, but that would be too simplistic. Risk is a whole range of things and, in fact, there are two better ways of thinking through what risk is, in addition to monitoring short term fluctuations. First, there is the risk of losing material amounts of money due to an unforeseen event. In our portfolios we cope with that by making investing in things specifically designed to deliver even if our world view proves to be wrong.
“Second, a very real risk for investors is that they are not going to meet their goals over time. Indeed, if you interpret risk as losing money, markets are actually relatively risky now. If you put all your money in a cash account, for example, you have very low risk in terms of volatility, little risk in terms of losing money, but a very high risk of not being able to retire when you want to retire. Our Aviva Investors Multi-strategy Target Return fund is designed to take a bit more risk, but with that, we will aim to deliver average annual returns of cash plus 5 per cent before charges over a rolling three years and with less than half the volatility than a typical investment in global equities over that same period. In the meantime, we take away all the complexity and the risk of making the wrong investment choice.”
The overall message to investors is, while risk is unavoidable and, indeed, in many cases desirable as a way to bolster returns, it is an element that can be managed with skill and expertise. The most desirable option is a fund such as the Aviva Investors Multi-Strategy Target Return fund, which deals with uncertainty in a constructive way while removing the need for investors to get weighed down with understanding the complexity of the markets.
To find out more go to avivainvestors.co.uk/AIMS/adviser, call 0800 015 4773 † or email fundandsalessupport@avivainvestors.com
†Calls to this number may be recorded for training and monitoring purposes. Calls are free from a BT landline. Call charges may vary from mobiles and other networks.
For investment professionals only. This is not to be viewed by or used with retail clients.
The value of an investment can go down as well as up. Investors may not get back the original amount invested. The return and volatility objectives are targets only and there is no guarantee that they will be achieved. In order to fulfil the fund’s objectives the manager invests principally in derivatives contracts. Please refer to the fund objectives and investment policy contained in the Key Investor Information Document and the Prospectus.
Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk CI063109 09/2014
