[CH] Column on Multi-Asset
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- Multi-asset investing provides diversification benefits and helps reduce risk compared to investing in single asset classes alone. It allows investors to replace some interest rate risk with opportunities in other assets. - Recent volatility has been driven by emerging market turmoil, with weakness in China impacting other emerging market currencies and risk assets. This increased volatility has spilled over into developed market assets as well. - Going forward, the author expects a moderate global economic recovery, but increased volatility as the US Federal Reserve transitions to a policy normalization process of slowly raising interest rates. Defensive positioning is adopted given current market fragility and sentiment-driven behavior.
[CH] Column on Multi-Asset
- 1. Multi-Asset investing in a challenging global economic environment Valentijn van Nieuwenhuijzen Head of Multi-Asset
- 2. The popularity of multi-asset solutions is clearly seen by the significant inflows finding their way into the sector. Apart from their attractiveness in the current market climate, diversified multi-asset approaches should be considered in all market environments. History has shown that differences in returns between asset classes can be quite significant with also large differences persisting between regions and sectors. Many things have changed since the start of the global financial crisis in 2008. As a result of the crisis, central banks around the world have lowered their key interest rates and engaged in unconventional easing measures. This has led to an unprecedented decline in government bond yields in developed market (DM) economies, despite recent steep corrections in yields on, for example, German Bunds in April and May this year. Multi-asset funds give investors the opportunity to replace part of the interest rate risk they face in their bond portfolios with potentially better rewarded opportunities in other asset classes, without increasing the overall portfolio risk. When we return to an environment of greater investor confidence and improved global growth conditions, persisting global economic and monetary policy divergence will continue to lead to return differences between and within asset classes. Regions will be in different phases of the cycle and sectors will respond in a variety of ways. Furthermore, the frequent occurrence of unexpected events also rewards those investors with the ability to change views quickly and act accordingly. Recent developments Ongoing uncertainty about emerging markets (EM) caused a spill over into DM assets in August and September, resulting in a sharp rise in DM equity market volatility. Volatility rose much more compared to other periods of uncertainty in past years. In fact, the volatility spike (as measured by the VIX) was comparable with late 2011, although the duration of severe uncertainty was much shorter. Currently, volatility is still elevated, but has come down from extreme levels. At the centre of the uncertainty were emerging markets. The Chinese currency devaluation drove many other EM currencies down. These currencies have been weakening for some time now and quite a few currencies have fallen significantly against the US dollar since the start of the year. The spill over of the EM volatility was most noticeable in equities and commodities. Other risky assets were also not spared and we saw for instance a widening of Euro area investment grade and high yield spreads. One important way in which the EM turmoil is impacting DM government bond yields is through inflation expectations. EM weakness has resulted in declining commodity prices, which have strongly impacted inflation expectations over the past year. In case the market would be worried about the overall outlook for global economic growth and monetary policy, also the real yield would decline. This is however not the case at this stage. There is still a slight upward trend in real yields in the US and the Eurozone. Whether this trend continues will depend on the level of contagion of the EM crisis into the DM growth environment. Outlook In the medium term, we expect a moderate global economic recovery which supports risky asset fundamentals. From a monetary policy perspective, we expect the Fed to move slowly on its path of normalizing monetary conditions, which implies a process of slowly increasing bond yields in the coming years. In the Eurozone and Japan monetary conditions are still being loosened. The result of this is that, on a net basis, global liquidity continues to expand. However, the transition into policy normalization by the Fed may result in increased market volatility. We expect to remain in a relatively low inflation environment for the time being. For the moment, markets do look fragile with a life of their own. The EM environment remains very weak, with the potential of a spill-over into DM. We have adopted a more defensive asset allocation stance over the past couple of weeks. As markets are to a large extent driven by short-term sentiment and news currently, volatility is expected to remain high. In such market circumstances, value can be added by adapting to market behaviour in order to exploit new opportunities available in the cross-currents of underlying fundamentals and market behaviour. Valentijn van Nieuwenhuijzen Head of Multi-Asset
- 3. About NN Investment Partners NN Investment Partners is the asset manager of NN Group N.V., a publicly traded corporation. NN Investment Partners is head-quartered in The Hague, The Netherlands. NN Investment Partners manages in aggregate approximately EUR 184 bln* (USD 206 bln*) in assets for institutions and individual investors worldwide. NN Investment Partners employs over 1,100 staff and is active in 16 countries across Europe, Middle East, Asia and U.S. As of April 07, ING Investment Management has renamed to NN Investment Partners. NN Investment Partners is part of NN Group N.V., a publicly traded corporation. Currently NN Group is 37.1% owned by ING Group. ING intends to divest the remaining stake in NN Group before 31 December 2016, in line with the timeline ING has agreed with the European Commission.” *Figures as of 30 June 2015 Disclaimer The elements contained in this document have been prepared solely for the purpose of informa- tion and do not constitute an offer, in particular a prospectus or any invitation to treat, buy or sell any security or to participate in any trading strategy. This document is intended for press use only. While particular attention has been paid to the contents of this document, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. Any information given in this document may be subject to change or update without notice. Neither NN Investment Partners B.V., NN Investment Partners Holdings N.V. nor any other company or unit belonging to the NN Group, nor any of its officers, directors or employees can be held directly or indirectly liable or responsible with respect to the information and/or recommendations of any kind expressed herein. The information contained in this document cannot be understood as provision of investment services. If you wish to obtain investment services please contact our office for advice. Use of the information contained in this document is solely at your risk. Investment sustains risk. Please note that the value of your investment may rise or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. This document is not intended and may not be used to solicit sales of investments or subscription of securities in countries where this is prohibited by the relevant authorities or legislation. Any claims arising out of or in connection with the terms and conditions of this disclaimer are governed by Dutch law.