After a long boom in everything, markets are showing symptoms of late-cycle anxiety, according to Mark Robertson, Aviva Investors head of multi-strategy.
And it’s not just a case of coronavirus.
“There’s a bit of nervousness among investors about end-of-cycle dynamics,” the London-based Robertson said.
He said signs of market stress such as rising volatility in equity markets and tight credit spreads have sparked a growing demand among institutional investors for alternative strategies.
“We’re certainly seeing more interest from consultants in our multi-asset funds,” Robertson said.
The UK-headquartered Aviva, which has offices in Sydney and Melbourne among its 14 global locations, draws on a deep pool of in-house knowledge to create its multi-asset solutions, he said.
“We have a large breadth of resources covering equities, credit, real assets, ESG [environmental, social and governance], emerging markets, global rates and more,” Robertson said.
However, creating multi-asset portfolios out of the many different potential ingredients is no simple cut-and-paste job.
“We start with a clean sheet of paper,” Robertson said. “There is no strategic benchmark, or volatility restraints or risk parity.
“Our aim is to blend the best investment ideas into portfolios designed to achieve specific outcomes. We don’t have a starting point that says we should have this much in equities.”
In practice, that can see the Aviva multi-asset funds allocate across equities, credit, currencies, rates and other markets, often through the use of derivatives, to hit absolute return targets.
While the approach verges into hedge fund territory, Robertson said multi-asset investing – or at least the Aviva version – more properly falls into the ‘liquid alternatives’ basket.
“All our strategies are highly-liquid and transparent,” he said.
Multi-asset strategies also usually come in cheaper than the standard hedge fund pricing model of “two and 20” – or 2 per cent management fee plus 20 per cent of any outperformance.
By contrast, institutional investors typically pay between 65 to 85 basis points for the Aviva multi-asset range.
On a flying visit to NZ last week, Robertson – an ex-pat Kiwi – said in addition to the absolute return qualities, investors also look to multi-asset as a portfolio diversifier.
For example, the Australian-domiciled version of the Aviva Multi-Strategy Target Return Fund had a “beta to global equities between 0.1 to 0.3”, he said.
According to the Aviva factsheet, the fund returned an annualised 3.35 per cent gross over the three years to end-December 2019 at an average volatility of just under 4 per cent.
“This compares with the 9.46 per cent annualised volatility seen from the [local currency] MSCI All Country World Index… over the same period,” the factsheet says.
Over calendar year 2019, the same Aviva fund booked a gross return of about 12 per cent in a period when booming global equity markets flirted with 30 per cent.
“Investors should see multi-asset as part of the solution to diversify equity and credit risk,” Robertson said. “Multi-asset also offers a capital protection element – it’s designed to perform well when markets are under stress.”
Aviva has, to date, landed just a handful of clients in NZ but he said as end-of-cycle anxiety spikes up, investors would be looking for something to soothe nerves. The manager is also exploring how to better-package its funds for NZ investors.