A multj-asset strategy: beyond a traditjonal approach for returns - PDF document

HIGH-IMPACT BRIEFING A multj-asset strategy: beyond a traditjonal approach for returns Tina Yao of BNP Paribas Investment Partners explains why a multj-asset class solutjon is appropriate for investors today, and reveals how to determine the allocatjon of assets. With the global investment landscape innovatjve and look beyond the tradi- so volatjle, traditjonal ways to access tjonal investment approach.” the markets carry higher risk but yield lower returns. As a result, says Tina Yao, Her team, she says, has been working head of multj-asset solutjons for BNP for the past 10 years in delivering prod- Paribas Investment Partners in Asia, ucts that ofger an aturactjve potentjal there seem to be only two investment return and a balanced risk profjle, optjons today. “Invest in instruments despite prevailing market conditjons. “Investment managers need to be more innovatjve and look beyond the traditjonal investment approach.” TINA YAO BNP Paribas Investment Partners that yield higher returns but have a The fjrm’s multj-asset income team de- roller-coaster journey, or invest in safer termines which asset classes are most assets that deliver low returns.” suitable to a stated investment objectjve Link to Presentatjon Video and then invests in those asset classes. But Yao and her colleagues believe Link to Speaker Biography investors should be given more optjons. This involves a dynamic investment ap- “Investment managers need to be more proach and a fmexible asset allocatjon, 1 INVESTMENTS

A typical multj-asset investment strat- to be able to respond quickly to any The European strategy aims to distrib- egy, she says, starts by looking at these changes in increasingly volatjle markets. ute a regular income and deliver capital six key assets: equity, real estate secu- growth, with a very reasonable risk ritjes, high yield bonds, investment- WHY MULTI-ASSET SOLUTIONS profjle. Since the fjrm believes in fmex- grade corporate bonds, government Yao says the fjrm’s clients want to ible asset allocatjon, European equity bonds, and convertjble bonds. benefjt from the upside in a partjcular can fmuctuate between 0%-60% and market. Plus, they also want a smooth European cash instruments are sanc- “We then do a long-term optjmisatjon ride. “Avoiding the volatjlity and uncer- tjoned to go as high as 80% in adverse and defjne the risk and return profjle of tainty is important. That is what we aim market conditjons. the product based on the difgerent asset to deliver,” she explains. classes and their prospects in the This strategy was created for Asian market,” says Yao. The fjrm’s most recent European strat- clients who wanted to partjcipate in the egy, born about a year ago, speaks recovery of the European markets but Asset allocatjon is the next step. volumes about what clients really want needed a way to identjfy and invest in and what is most appropriate based on local assets without being exposed to The decision is based on evaluatjon on market conditjons. unnecessary risk, explains Yao. valuatjons, economic fundamentals and investor behaviour. To come to an asset allocatjon conclu- sion, the decision maker has to weigh “By diversifying across difgerent asset classes and relying on difgerent factors to see which one on dynamic asset allocatjon and actjve management, the is most likely to drive the performance aim is to create strategies which ofger investors a under the current environment. regular income with a reasonable risk profjle.” This is a complex decision, adds Yao. It relies on the team’s broad experience and deep understanding of the markets. However, once the asset allocatjon is ACTIVE MANAGEMENT: A For example, afuer the fjnancial turmoil decided, it is the role of the asset class VALUE ADD from 2008, it became clear that simple specialists to pick the individual securi- The focus on fmexible asset allocatjon is diversification was not enough to tjes for the strategy. tjed to the fact that asset returns tend protect a portgolio and produce reason- to stabilise over the long term but over able returns. Yao says the fjrm believes this is a betuer the short term, it can be volatjle. route compared with using a fund of Therefore, a fmexible, outcome-oriented, funds approach; it allows them to betuer Over a period of 20 years, for example, total return approach is what’s needed. tailor their investments to match their performance across asset classes tends “Multj-asset income strategies are a market views and also to retain the fmex - to be relatjvely close to the benchmark. good optjon under such circumstances,” ibility and agility required to execute But it is the shorter term that worries says Yao. such a strategy. investors and fund managers. By diversifying across difgerent asset “Our team works like an orchestra, and Asset performance can be extreme over classes and relying on dynamic asset the multj-asset solutjons team is like a short tjmeframes, making actjve man- allocatjon and actjve management, the music conductor,” she adds. “We decide agement a necessity. “That is the right aim is to create strategies which ofger how much potentjal output we want way to improve performance and we aim investors a regular income with a rea- from each instrument. Once we decide to add value on that front,” says Yao. sonable risk profjle, she adds. on that, we leave them to perform.” 2 INVESTMENTS