Multi-Asset: How uncertainty presents opportunity

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This is a sponsored article from NN Investment Partners.

 

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Valentijn van Nieuwenhuijzen, head of multi-asset, NN Investment Partners.

“Multi-asset investing is a robust way to navigate through periods of market turmoil and offers flexibility to act when new opportunities arise,” observes Valentijn van Nieuwenhuijzen, head of multi-asset at NN Investment Partners.

“The current market environment, with increasing volatility and low rates, will favour these strategies even more”.

There is never a dull moment in markets – and this holds especially true this year. With a number of high profile elections including one in the US and unexpected outcomes as with Brexit, markets have been keeping investors on their toes more than ever. Adding to political events, weaker growth trends, ageing populations and record low yields create a world full of challenges for investors.

Investors are searching for more effective methods in their search for better returns. Besides lower returns on investment in a number of sectors, tighter regulations have further reduced the investment scope available to investors. Investors need to look to diversify their portfolio and to ensure they are ready to absorb potential market and political shocks which may affect their investments.

In such uncertain times, there is a strong case to be made for multi-asset solutions, as they allow investors to face uncertainty, as well as exploit potential opportunities, in a risk aware manner.

Multi-asset solutions provide access to a transparent investment approach that utilises multiple and globally diversified returns sources without losing sight on the uncertainty attached to those sources. The flexibility of multi-asset funds provides more robustness in periods of uncertainty and creates a steady capital appreciation in the long run.

Furthermore, multi-asset solutions are executed using liquid instruments that create maximum flexibility for the investor and portfolio manager, which allows investors to adapt to constantly changing and evolving circumstances. Crucially important in this respect is that multi-asset solutions provide more robustness in periods of stress than most other investment alternatives.

How can investors benefit from multi-asset investment?

  • Multi-asset solutions are designed to adapt to market fluctuations and shocks, which makes investors less exposed than if they had a narrower portfolio;
  • these types of solutions also ensure relatively stable returns within clearly defined risk parameters, reducing the risk of bad surprises;
  • multi-asset solutions provide a strong diversifier for investors and can offer an alternative to traditionally “defensive” fixed income exposures. The realised volatility in recent years of risk aware multi-asset strategies is comparable to that of bond portfolios, but looking forward the estimated risk distribution of fixed income portfolios is much more skewed to the downside.

These benefits of multi-asset solutions also hold true for investors in Asia. With increased uncertainty around China’s economy and ballooning debt coming out of the region, investors need to look at their investment portfolio and how they can look to diversify it and control their risk exposure.

On the flip side, it is important that investors are not overly risk adverse, as excessive aversion to risk can cause secular stagnation, which is a widespread decrease in the willingness to take risk in the real economy as well as in the financial markets. Risk aversion in the real economy will lead to an increase in precautionary savings and a fall in investment appetite. It is therefore important that investors discuss the right level of risk exposure with their portfolio managers to ensure that they do reap the benefits of their investment.

Overall, the key benefit to multi-asset solutions is controlled risk exposure and stable investment returns, which is all the more valuable as the market shows no sign of becoming less volatile in the near future. There are upcoming milestone political events internationally that could impact markets majorly, such as the French and German elections in 2017, after what is likely to be a tumultuous US election in November. All this is happening amidst an ongoing low and even negative interest rate environment.

The good news for investors is that volatile markets and an environment where safe investments generate little or even negative interest rates are some of the best conditions for multi asset investing to do well.

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NN INVESTMENT PARTNERS DISCLAIMER

This document is for informational purposes only and is not the basis for any contract to deal in any security or instrument, or for NN Investment Partners (Singapore) Ltd (“NNIP SG”) or its affiliates to enter into or arrange any type of transaction as a consequence of any information contained here. It shall not be construed as the making of any offer or invitation to anyone in any jurisdiction in which such offer is not authorised, or in which the person making such offer is not qualified to do so, or to anyone to whom it is unlawful to make such an offer. Although the information in this document was compiled from sources believed to be reliable, no liability for any error or omission is accepted by NNIP SG or its affiliates or any of their directors or employees. The information and opinion contained here may also change.

NN Investment Partners (Singapore) Ltd | Company registration number: 199602506R

This is a sponsored article from NN Investment Partners.

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