(updated with correction)
Money managers offering diversified growth strategies saw their dynamism and asset allocation prowess tested in recent times, as volatility last summer and the beginning of this year caused equity markets to tumble.
A number of money managers running these types of strategies managed their way through the turmoil by reducing equities exposure in favor of more defensive assets.
Baring Asset Management cut equity exposure at the start of the year, moving to around 45% from 55%. Early in February, executives bought back 5% of equities and took on some high-yield exposure. “I think the difference between this time and the previous crashes is that we have been a little more cautious — we have taken our time and wanted to see cheaper prices before we got in, just because the move was quite violent, and to a certain extent, unexpected,” said Marino Valensise, head of Baring Asset Management's multiasset group, based in London.
As money managers returned to their desks Jan. 4, they were “shocked to see such a sharp fall-off in China. Returns suggest most were positioned fairly constructively, but the dispersion of returns across the DGF sector in January and early February was much wider that I have seen historically,” said Sara Morgan, London-based managing director in BlackRock Inc.'s multiasset strategies group.
At their worst, some equity markets fell 15% to 20%; BlackRock's fund was down 3% to 4%.
Similarly, “when events in China sent a ripple across financial markets in August, volatility spiked to an all-time high,” with equity markets falling around 10% to 15% at their worst. “Our flagship portfolio was down 3% to 3.5% peak to trough and we recovered ground very quickly,” said Ms. Morgan, who added that recent volatility has led to increased discussions and interest in diversified growth strategies from potential clients.
David Vickers, London-based senior portfolio manager, Europe, Middle East and Africa multiasset solutions, at Russell Investments, said: “Last year probably was the most dynamic this fund has ever been,” regarding the firm's £1.6 billion multiasset growth strategy. “That was because the market conditions dictated that the opportunities were there to be dynamic.” Moves included reducing equity exposure to around 33%, from more than 50%, and adding tactically to the portfolio with positions in U.S. Treasuries.
Johanna Kyrklund, head of multiasset investments at Schroders PLC in London, said executives there avoided cyclical assets and reduced equities in the summer “in recognition that growth wasn't coming through.”
Nordea Asset Management put its risk-focused approach to multiasset investing to work in its £320 million U.K. strategy. Thomas Nehring, Nordea's head of U.K. and U.S. institutional distribution based in London, said the MSCI World index was down around 500 basis points in January vs. a 180-basis-point return gross of fees for the firm's diversified growth strategy. Similarly in the summer, as the MSCI World index fell around 400 basis points, Nordea provided a 50-basis-point return. “It is all due to this very strict focus on the bottom-up risk controlling of the product,” he said.