Multi-Asset investing has over the last decade or so been building a solid reputation for delivering diversified returns, but the wide array of solutions now falling into the genre is far from one size fits all with lots of vanilla offerings and not many stand out solutions!
Investing on the basis of valuation seems obvious but surprisingly not that common in Multi-Asset approaches.
This approach requires high conviction and often a contrarian mindset but how can this approach manifest itself within a wide array of assets?
Simply put it’s down to two things, firstly strength of research, investing on valuation often means buying ahead of other investors before the market catches up on news flow, ideas and themes, this can only be done with a clear and informed investment thesis derived from in-depth research. Whether the answer to invest is yes or no the research will give you confidence in your decision.
The second is expertise and experience and the two go hand in hand. Multi-Asset investing can in its truest form lead you to very different and complex areas… all that glitters certainly is not gold and a significant level of expertise is required to navigate many of the specialist financial, private equity, alternative energy and specialist property opportunities that can be highly rewarding if selected correctly.
Simply put investing in assets that offer future value and holding them as their value rises would on the face of it appear to be the very key to good investment management, and yet in the last few years many investors have made good returns buying into growth and momentum stories that have continued to rise… the future may hold very different challenges.
It is important to understand that inflation and the current drivers of pent up purchasing demand now being released into the market post pandemic will undoubtedly drive inflation up short term.
There does however remain a real likelihood that inflation levels could be elevated medium term too and given this the rational for increased diversification and the inclusion of real assets to offer an element of protection within the portfolio remains strong.
Eggs and baskets
The old adage suggests not to put all your eggs in one basket, it’s the obvious diversification argument but a well-defined Multi-Asset solutions can deliver just that.
Investing in a wide array of assets is one level of diversification with assets spread across global equity, a full range of credit and bonds and of course the key areas of tangible real asset alternatives.
The second and perhaps less considered is the diversification of investment style and by having the overriding tenet of valuation in the asset selection process different style investments can be purchased at attractive prices and for a broader diversification, this too must be considered in the asset and investment selection.
Those investing for income would have historically seen reasonable, and in some cases strong, income returns from simple equity and bond asset allocated portfolios.
The market challenges in the last year have meant that a simple equity bond portfolio may not produce the income requirements for many clients in the medium term as these events play out.