In today's connected world, portfolios need to be constructed so they can respond quickly to changing conditions and market opportunities.
The world has never been more interconnected than it is today. The theory of "the butterfly effect", the idea that a relatively small event can reverberate across the world, has perhaps never been more valid given the speed at which ideas and news now flows across borders.
This was demonstrated more than a decade ago when increasing numbers of US homeowners began to default on their mortgages payments. Many of the mortgages had been bundled up and sold on to banks and investors around the world.
Consequently, the crisis spread rapidly with financial institutions unwilling to lend to each other and households cutting back on consumption. Falling demand prompted international trade and inward investment to slump, allowing the virus to quickly infect the entire global economy.
The global financial crisis is a particularly dramatic example of the butterfly effect but, in truth, we see examples of the interconnectedness of financial markets every day and everywhere.
75% of the FTSE 100 are overseas earners and nearly 25% are commodity companies
Even if you focus your investments on the UK, you cannot expect to be insulated from global events. 75% of the FTSE 100 are overseas earners and nearly 25% are commodity companies. This means that events in far-flung corners of the world, such as North Korea, could impact UK shares via the dollar or commodity prices.
How we build the portfolios
Our global approach allows us to make full use of the in-depth, in-house research produced by our expert analysts, economists, researchers and strategists. This feeds in to our ‘House View' - our outlook for the global economy.
Our ‘House View' helps us identify potentially attractive asset classes from around the world. [It is] the foundation for our decisions
The global nature of the Aviva Investors range of multi-asset funds
Past performance is not a guide to future returns.
In a traditional multi-asset fund range approach, equities are seen as the riskiest asset class with the greatest potential for growth, while fixed income is typically used to lower the overall risk and alternatives move independently of either of them.
We believe this approach is no longer as effective as it used to be, since fixed income now covers a much wider range of investments and some are arguably potentially riskier than equities.
Instead, we categorise investments into the three buckets:
- Growth assets
- Defensive assets
- Uncorrelated assets
Each fund within the range has an allocation to these three buckets and they are then adjusted to reflect our current ‘House View', so we can respond quickly to changing conditions and market opportunities.
Our approach aims to help investors sleep easier at night, safe in the knowledge that their money is invested in a balanced portfolio of global assets, which aims to be well placed to withstand the impact of unexpected events wherever they may occur.
The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.
The funds use derivatives, these can be complex and highly volatile. This means in unusual market conditions the funds may suffer significant losses.
The funds invests in emerging markets, these markets may be volatile and carry higher risk than developed markets.
For financial advisers only. This commentary is not an investment recommendation and should not be viewed as such. Except where stated as otherwise, the source of all information is Aviva Investors as at 31 May 2017. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature.
The Aviva Investors Multi-asset Fund range comprises the Aviva Investors Multi-asset Fund I ("MAF I"), the Aviva Investors Multi-asset Fund II ("MAF II"), the Aviva Investors Multi-asset Fund III ("MAF III"), the Aviva Investors Multi-asset Fund IV ("MAF IV") and the Aviva Investors Multi-asset Fund V ("MAF V") (together the "Funds"). The Funds are sub-funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. Copies of these documents and the Prospectus are available to download in English from our document library on avivainvestors.com.
Issued by Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated in the UK by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St Helen's, 1 Undershaft, London EC3P 3DQ. An Aviva company.