“It is a day in the sun for asset allocators,” said Curt Custard, UBS’s head of global investment solutions, as his group announced the launch of a multi-asset product for the DB pension market last week.
UBS’s Diversified Return Fund (DRF) aims to produce equity-like returns from a multi-asset portfolio, but for schemes that do not have the risk appetite for full equity-like volatility.
It is essentially the same proposition multi-manager and multi-asset portfolios offer to
the retail market and, with continued uncertainty in the markets, the appeal of such strategies
is clear.
Custard argues we have moved from the period of “great moderation” – falling interest rates, low inflation, and rising asset prices to the “new norm”. Although, as he says, no-one is quite sure what the new norm really is.
Most market participants would agree part of the new norm is deleveraging – either by individuals, corporates or governments – but how this plays out in asset terms is almost impossible to decipher.
The deleveraging is likely to run for a sustained period – Custard believes as long as a decade and a half – but markets seem confused as to whether deleveraging will result in inflation or deflation and where the place for equities is in either scenario.
It seems likely we will see increasing equity market volatility in whichever scenario, and the net impact will be that investors remain concerned about risk.
It is a double-edged sword. On one level they are increasingly nervous about taking unnecessary risk and, on the other, returns from cash are so low as to be almost irrelevant.
With this scenario and general uncertainty created daily issues as diverse as North Korean sabre rattling, BA strikes and Greek debt problems, the appeal of gold as a safe haven remains easy to understand.
All this plays into the hands of multi-asset investing, but a word of caution. Is the premium for safety too high currently and what actually constitutes safety?
The premium for perceived safety in terms of reliability of returns and liquidity is too high, and surely this is a time when clients should be taking on more risk not less, and are multi asset products the right way to take on that risk?
They are not, because that is not their role, so surely the correct strategy for clients now is a core and satellite approach with multi-asset as the core.
