COVID-19 prompts multi-asset shift
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.
Recommended for you
In the latest Meet the Manager profile, Money Management speaks with Michael Skinner, founder and managing director at Blackwattle Investment Partners.
Perpetual has seen AUM rise 6 per cent in the last quarter but the departure of a longstanding JOHCM fund manager led to outflows of $2.2 billion from his strategy.
Global fixed income fund Bentham Global Opportunities has been added to several major platforms, enabling it to be accessed more easily by financial advisers.
Following yesterday’s news about First Sentier Investors closing four investment teams, a second global asset manager has announced it is closing its only dedicated Australian fund.
