MULTI- ASSET STRATEGIES
Enhancing your portfolio
An investor with an ear to the ground has probably already heard a thing or two about multi- asset strategies, but if you haven’t, it’s probably just a matter of time until you do.
The focus on enhancing returns using several asset classes as opposed to just one or two is growing in popularity among professional money managers as a solution to the challenges of an increasingly inter- connected and more easily accessible global marketplace.
“It’s like a spider web or jigsaw puzzle,” said Jordan Kotick, a cross- asset strategist at RBC Capital Markets in Toronto. “It’s more important than ever to try to connect all the pieces.”
In a nutshell, multi- asset ( or cross- asset) strategies invest in a variety of asset classes — everything from stocks and bonds to commodities and currencies — by analyzing global macro trends and then determining appropriate allocations.
It’s not a groundbreaking idea, of course. Balanced funds, which have been around for years, were borne of the same concept and some people argue multi- asset strategies are just the latest label being slapped on an age- old convention.
That may be true to a certain extent, but the latest iteration is far more complex because of the proliferation of new products, including exchange- traded funds, that provide growing access to a range of investments across sectors and geographies.
For example, a typical balanced fund might be half in stocks and half in bonds, but a multi- strategy fund could include a flexible allocation to stocks, bonds and other asset classes and be managed with or without constraint to size, style, duration and other factors.
In many respects, it’s more like how a hedge fund would run money than it is a traditional mutual fund.
“It is an evolution of an existing thinking,” said Joanna Zapior, the managing director and head of macro strategy at CIBC World Markets. “It’s been known for a long time that asset allocation decisions are important, but in the everyday context, it’s now more clear that macro conditions can be much more important than individual security selection.”
Canadian investors seem to recognize the magnitude of this shift in demand for multi- asset solutions more acutely than anyone.
In a 2014 State Street global survey of asset managers, 67 per cent said they expect multi- asset solutions to be the investment strategy that contributes most to their business growth over the next three years, but that figure rises to 81 per cent for those polled in Canada.
“The reality is that multi- asset solutions have a very solid home in portfolios,” said Barry Gordon, chief executive of First Asset Investment Management Inc., in the report based on the survey.
Despite Gordon’s belief, 85 per cent of Canadian respondents strongly agreed that few asset managers in the country are currently equipped to thrive when it comes to offering such solutions, compared with 74 per cent overall.
As a result, more attention is being paid to the strategy, not only on the buy side, but also among sellside analysts.
RBC’s Kotick, for instance, was hired last year to initiate cross- asset research for the firm, following a well- established trend south of the border.
Unlike an equity or fixed- income analyst who has a singular focus, he provides both top- down and bottomup analyses on a variety of asset classes in order to recommend allocation strategies to clients.
“I use both a telescope and a microscope,” he said.
Kotick expects the growing interest in cross- asset strategies will continue as new products are introduced in the coming years and investors grow more comfortable with them.
“At the end of the day, it’s about following the money,” he said. “That’s the bottom line. Where is the money going and then putting it all together.”
It’s like a spider web or jigsaw puzzle. It’s more important than ever to try to connect all the pieces.