New money going into global tactical asset allocation is slowing to a trickle after years of substantial inflows.
For the first quarter of this year, the strategy attracted only $1.74 billion in net inflows, vs. $14.4 billion for the first quarter of 2014, according to eVestment LLC, Marietta, Ga.
At that rate, inflows would total less than $7 billion for all of 2015. That would be a huge drop from what eVestment said was $30 billion in calendar year 2014 and $61 billion in 2013.
As for performance, unhedged GTAA portfolios returned 2.7% for the year ended March 31, and an annualized 6.6% for both the five- and 10-year periods.
Hedged GTAA portfolios returned 3.7% for the one-year period, an annualized 6.8% for five years and an annualized 7.8% for 10 years.
Investment consultants and GTAA managers say the numbers do not reflect newer strategies or products or substantial allocations already made, and they see more reasons than ever to recommend it.
“Our view is that it (GTAA) should be considered a core building block for most portfolios. We use it in many ways,” said Steven F. Charlton, partner and director of consulting services at investment consultant NEPC LLC, Cambridge, Mass..
More than half of NEPC's clients have allocated up to 20% each to GTAA.
At Rocaton Investment Advisors LLC, Norwalk, Conn., Matt Maleri, managing director of asset allocation, said: “We are definitely hearing interest among clients, and the market environment we are in now is largely responsible. They're really looking for anything that can generate a return, and risk is certainly at the forefront.”
GTAA strategies differ by asset class, implementation method and timing. Some managers try to add alpha through security selection while others actively use beta strategies, such as passive exchange-traded funds. But they are all designed to reduce risk through diversification and tactical shifts among asset classes.
“Risk is where you start the (GTAA) conversation with the asset owner,” said Tim Barron, chief investment officer at consultant Segal Rogerscasey in Darien, Conn. “The goals and objectives all come in the camp of less beta, but they can be from really stable sources with low risk.”
There are more choices now for GTAA managers to offer. “They can use one chassis and create a variety of solutions for clients. There are a lot more arrows in the quiver. Fifteen years ago, it was stocks and bonds. Fast forward and it is derivatives, ETFs and many more asset types that they can create. Things are more tactical now,” Mr. Barron said.
“GTAA is a flavor that is evolving over time. Over the last 10 years, (GTAA) managers have begun to branch out. It's diversifying by different styles,” said Brian Singer, partner and head of the dynamic allocation strategies team at William Blair & Co. in Chicago, a GTAA manager with $1.5 billion in macro diversification strategies as of March 31.
Leading money management firms including Wellington Management Co. LLP and J.P. Morgan Asset Management have developed GTAA offerings that offer risk parity and can be more tactical to fit asset owners' needs, consultants said.
For foundations and endowments, that can mean GTAA strategies that are inflation based to protect assets, or even income- oriented, consultants say.
For corporate defined benefit plans, “it can be the alpha engine for LDI,” Mr. Barron said.