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Investec’s Multi-Asset products offer building block diversification

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Investors are looking for solutions that offer an attractive trade-off between return and risk tolerance, says John Stopford, (pictured) co-head of Investec Asset Management’s Multi-Asset Invest

Investors are looking for solutions that offer an attractive trade-off between return and risk tolerance, says John Stopford, (pictured) co-head of Investec Asset Management’s Multi-Asset Investment team. “Resilience is needed in a portfolio,” he says, explaining that in the multi-asset team, they start the portfolio build from the bottom up, exploiting the breadth of choice available, while assessing how the asset components fit together, to ensure a well-diversified portfolio.
 
“Diversification needs to focus on asset characteristics, not labels,” Stopford says. “We tend to focus on making sure we have the right blend of growth characteristics, defensive characteristics and uncorrelated characteristics.”
 
As an example of how  these attributes can change at different times, Stopford uses gold, which is hard to categorise, he says, as it moves between asset characteristics from defensive to uncorrelated.
 
The third factor in the team’s approach to multi-asset is flexibility. “We can adapt the portfolio to changing market environments and use techniques which historically might have been more the preserve of hedge funds,” Stopford says. Here they use long/short techniques, shorting growth exposure to make it defensive. The firm has been short on the Aussie dollar for most of the period since 2011 as a hedge against their growth exposure, and also at various times against the New Zealand dollar to create a relative value play.
 
“This expands the tool kit. We think in terms of a risk budget – how will the risk we take be rewarded in terms of return. The strongest demand we have is for replacement exposure for growth. We try to make the most efficient use of our risk allowance to generate returns,” he says.
 
Two of the solutions they offer are the Diversified Growth Strategy and the Diversified Income Strategy. The former is popular with pension funds. The Defined Benefit space needs growth with low volatility to make up deficits  while the Defined Contribution space needs growth as well, with a moderate tolerance to risk.
 
The Diversified Income Fund is finding traction as a building block in defensive multi asset strategies run by wealth managers. Stopford has found that consolidation in the wealth management community has led to greater consistency in their approach.
 
“They have evolved from a private client stockbroker background to a centralised, model portfolio approach,” he says.
 
The Diversified Growth Strategy has some GBP2 billion under management and aims to achieve inflation plus 5 per cent on a five year rolling return basis. The Diversified Income Strategy aims for 4-6 per cent returns with bond like volatility.
 
 
Both products can invest in equities, fixed income, infrastructure, property, credit, commodities and reinsurance , but the Income product tends to focus on higher yielding opportunities across bonds,  equities, property and infrastructure.
 
In terms of the property portfolio within the multi-asset group, Stopford focuses on the income potential of property as rental increases offer good defensive opportunities. REITs, with their income distribution requirement, are particularly popular. Infrastructure poses more of a problem as the quality of the assets is strong but the lack of supply causes a problem because it can’t be scaled up, he explains.
 
 
 
 
 

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