PARTNER INSIGHT: Multi-asset investing is increasingly on the radar of fund selectors. From a UK perspective, new regulation stemming from the Retail Distribution Review has been a key driver behind the uptake in these solutions.
MATR uses three sources of return; all three have a similar risk budget within the Fund over time: market risk, alternative risk and tactical opportunities.
"This helps us diversify risk much more than in a traditional, constrained, multi-asset fund.
"Firstly, we want to have exposure to market returns so that we can earn the market risk premium.
"Secondly, we also have a number of rules-based strategies that capture other risk premiums, as the market risk premium is not the only one out there. The factors we consider here are carry, momentum, volatility and value.
"Then lastly, we try to add value through tactical opportunities. The correlation between these strategies is low which provides helpful diversification."
However, importantly, the fund is active in the allocation of risk budget over the three return sources. At some points in time, like in 2009, market risk is the most attractive return source; low valuations make market risk premia very attractive.
Going forward, market returns look less attractive as valuations are more challenging and the economy is transitioning into late cycle.
However, MATR may have multiple return sources, but the Fund only has one set of objectives. The investment team strives to manage risk holistically to make all the components work as one.
Sector outlook
When it comes to the risk landscape for asset allocation in 2018, what are the main themes for investment managers?
"Despite a recent pick-up in market volatility, we don't foresee any serious problems at the moment. Our economists believe that the near-term global growth outlook will be steady and above trend in many parts of the world.
"This, partnered with a broadly low inflation environment, allows for a very gradual removal of monetary stimulus, which has created a 'Goldilocks' economic environment.
"We expect the market to become a lot more challenging at the end of 2018 when the chance of a US recession increases. This cyclical downturn will further expose structural problems like debt deficits and income inequality."
