Speaking on a Schroders webinar, Simon Doyle, CEO and CIO at Schroders Australia, characterised the current macroeconomic climate as “messy” due to a market volatility.
“The generous but unsustainable policy environment of recent years ended with a jolt when inflation arrived.
“Other disruptors are structural themes such as decarbonisation, deglobalisation and a shift in the world political order. Many forces are colliding that make the world difficult to interpret,” he explained.
With inflation expected to remain higher and more difficult to keep at 2 per cent, the investment framework used to build portfolios has changed significantly.
“Active management and asset allocation will become more important than it has been in the past,” Doyle remarked.
Sebastian Mullins, Schroders head of multi-asset in Australia, echoed this sentiment: “More volatility can provide more opportunities for active asset allocation.”
Money Management previously reported at the start of the year that 71 per cent of professional fund selectors believed markets would favour active management in 2023, according to a Natixis Investment Managers survey.
Higher inflation and interest rates demand a more active tactical asset allocation, Mullins continued. This also applies to what country, duration and currency investors are selecting.
Doyle added: “In the current environment, asset breadth is good, backed up by active management, to allow investors to navigate a more challenging path forward – but also a rewarding one if investors get it right.”
The global investment management firm has adopted a value bias, favouring companies which have cheaper multitudes and inflation-linked earnings.
Moreover, knowing when to add more or less to an investor’s 60/40 portfolio is crucial. Mullins encouraged retirees to consider raising the yield proportion of their portfolios during a high inflation period.
Despite the benefits offered by an active approach, Chris Brycki, chief executive and founder of Stockspot, has instead observed the opposite in the past.
“Active funds underperformed across all markets and all time periods, as more investors are switching out of active funds,” he told Money Management.
For example, active exchange-traded funds (ETFs) have seen some of the sharpest asset declines over the past year, driven by net outflows from investors.
Brycki observed that two of Magellan’s ETFs, the Magellan Global Fund – Open Class Units (Managed Fund) and the Magellan Infrastructure Fund (Currency Hedged) (Managed Fund), decreased by $2 billion and $200 million respectively over the last 12 months.
