The investments a fund manager chooses to leave out of a multi-asset portfolio can be as important as those they include, says RLAM head of multi-asset Trevor Greetham in this video interview.
Talking to Professional Adviser editor Julian Marr in the above video, he says the principal objective in the construction the group's six-strong range of multi-asset fund is to maximise investors' real return over the long run for a given level of risk.
He continues: "The two types of assets you want to include in a properly diversified fund are growth assets like equities, property and commodities, which should give good returns over the long run, but also ‘store of value' assets such as fixed income and absolute return.
"It is also important to decide what not to include - so we have avoided in our funds what I would describe as 'exotic' or 'expensive' asset classes, such as peer-to-peer lending or hedge funds."
Turning to the ability of a multi-asset manager to alter asset allocation to take advantage of current opportunities, Greetham declares himself a "big believer" in tactical asset allocation as an uncorrelated source of return.
He says: "If you have a tactical asset allocation - an active investment strategy that does not just add value by being long equities all the time - it can add value at different times to the underlying fund and help smooth returns."
At a time when prospective returns on fixed income are "rather challenged", Greetham adds, it is important to be able to move into assets such as absolute return - and also commodities, which can prosper when bonds are not. "You need to be able to tailor the fund for the environment you are in," he says.
In a year that has already seen the UK vote to leave the European Union (EU) and now offers the prospect of a surprisingly evenly-balanced election campaign in the US, Greetham sees multi-asset as an important counter to the prevailing climate of political risk.
Bonds and stocks may have both done surprisingly well in the months after the EU referendum, he observes, but he goes on: "When you get a shock event - and I think the markets would take negatively a Donald Trump victory or signs of him rising rapidly in the polls, given the uncertainty that involves - what you would then rely on is diversification and a lack of correlation.
"In that sort of environment, you would expect stocks to do badly but fixed income to do well and having both in a portfolio, again, smooths returns."
Other issues Greetham covers in the five-minute video include matching multi-asset funds to the risk appetites of different clients and how pension freedom has affected the demand for multi-asset solutions.
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