As the COVID-19 pandemic crushes the equity market, an increase to credit and developed market bonds are the key changes First Sentier Investors’ have made to its multi-asset portfolio.
Its six-monthly Neutral Asset Allocation Review in April, 2020, said the weight of equities had now moved from 50% to 29%, which was comprised of 19% global and 10% Australian equities.
Government bonds were increased from 21% to 33%, while global bonds went from no allocation to 7% and high-yield credit from zero to 5%
The review noted a key difference between this compared to other downturns in the last 100 years, which was the unprecedented fiscal and monetary stimulus.
Kej Somaia, co-head of multi-asset solutions, said in December the question would be “how long would the bull run last and now it was how long would the recovery take?”.
“We like investment grade and high-yield credit at the moment, as we believe it delivers a lower risk portfolio at the aggregate level, especially with strong central bank support,” Somaia said.
“The US Federal Reserve and the European Central Bank have indicated that they will not only be purchasing government bonds and investment grade credit, but for the first time, quality high-yield bonds too.
“This is a game-changer for fixed income, particularly in a portfolio context when we are reducing risk to higher volatility equity allocations.”
Somaia said relying solely on the review was not sufficient to manage the current market conditions to meet return objectives.