The diversification benefits of multi-asset portfolios in uncertainty

FundsLibrary hears from Bambos Hambi, Head of Fund of Funds Management, Standard Life Investments, and Joe Wiggins Fund Manager, Standard Life Investments about multi-asset portfolios.

Investing in uncertain times

The upswing in global economic growth that we saw near the end of 2016 has continued into the early months of 2017, with growth and trade picking up. Given where we are in the global economic cycle, several major developed economies could continue to perform slightly more strongly than had been expected. Geopolitical concerns, however, have been stealing the headlines and, going forward, these continue to dominate the landscape. A second interest rate rise by the US Federal Reserve was well-flagged, given a high rate of employment in the US and increasing inflationary pressures. The triggering of Article 50 in the UK, followed by the announcement of a UK general election in June, means investors have plenty to consider. The second round of the French presidential elections (imminent at the time of writing) is also likely to create turbulence in the months ahead, with potential sudden swings in the prices of equities and fixed income. Where, then, should we invest?

The benefits of multi-asset investing

In such uncertain times, the benefits of a well-diversified portfolio which may help to protect investors against the extremes of volatile markets and geopolitical events appears more appealing than ever. We believe that Standard Life Investments’ multi-asset MyFolio fund-of-funds range offers investors a very high level of diversification. MyFolio can invest in up to 19 asset classes. Effective diversification is not just selecting a few different asset classes. As times of previous market stress have shown, correlation of asset classes can be higher than expected, thus negating some of the benefit that is being sought. Our investment process aims to ensure that, irrespective of what’s happening in the markets, the portfolios will be truly diversified and smooth out some of the extreme swings that can be experienced. Diversification, as well as a prudent long-term strategy for asset allocation, helps us to provide a degree of insulation in difficult market conditions, while continuing to focus on delivering a long-term return in line with the level of risk the client is willing to take.

In order to cater for a broad range of investor requirements, our MyFolio range of funds, for example, offers a choice of five risk levels, three investment styles and growth and income options. For all investors, we expect the heightened change and uncertainty to continue to present challenges as well as opportunities. As with any investment, when it comes to multi-asset portfolios past performance is not a guide to the future, and the value can go down as well as up and is not guaranteed. We believe, however, that remaining faithful to a long-term, diversified approach, focusing on risk and carefully selecting funds from the best available from leading managers globally leaves us well placed to navigate the waters ahead.

To successfully manage a diverse multi-asset portfolio demands an exceptionally broad and skilled investment capability. The Standard Life Investments’ MyFolio fund-of-funds range is managed by a large dedicated Fund Solutions Team in the UK, supported by over 50 investment professionals and experts. This team chooses the individual funds while our Multi-Asset Investing Team provides a Tactical Asset Allocation overlay to enhance returns and ensures that each portfolio stays within the chosen level of risk.

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All figures correct as at 01.02.2018.