Multi asset is going through a pronounced ‘evolution’ which means that traditional views of balanced approaches are slowly becoming unrecognisable, Allianz Global Investors’ chief investment officer for multi asset, Europe, has told Citywire Selector.
Ingo Mainert said the past decade has seen a pronounced shift from combining equities, bonds and cash to much more specialised and thematic approaches.
The Frankfurt-based investor, whose remit includes oversight for Manuela Thies’s fund selection unit, said that AllianzGI is working across its 90-strong team to unearth more dynamic ways of diversifying.
‘I have observed a lot over the past 15 years, which includes some kind of change within balanced portfolio management,’ Mainert said. ‘We have had an evolution from balanced, first to multi asset and later to multi strategy.
‘When I was head of balanced at Commerzbank’s asset management arm at the beginning at the millennium, it was more or less an asset class where you mixed equities, bonds and cash. Then in 2007/08 we saw the start of the multi-asset business.
‘This meant further asset classes emerged, such as commodities, alternatives and broader sub-sets within the existing asset classes. Then in 2015/16 we moved to a multi-strategy side which also included topics, themes and strategies as other dimensions of diversification.’
Mainert, who chairs a monthly forum to bring together AllianzGI’s disparate working groups to discuss mixed asset allocation, said he has noticed a gradual and consistent change rather than a sudden shift.
‘It was an evolution not a revolution, I always felt that. There was a big differentiation to become more specialised, as you only used to have bonds or equities, but we are now encountering several ways of differentiation.
‘Out of the financial crisis in 2007/08, I felt that this holistic approach gained a little bit of momentum, and multi asset is where most of the money was going in and continues to go in.
‘I still believe in a diversified approach, especially at times of spikes in volatility. A fundamental law of portfolio management is diversification. Use the segments, use the depths in the segments and that is how you can optimise your outcome over the long term.’
Eyes for EMD alone
So, where is Mainert focusing his efforts? ‘At the turn of the year we became more cautious on the government bond side, and on fixed income in general.
'This is because last year there was value in credit, high yield and EMs, meaning investors could benefit from interest rate differentials. Now these differentials are squeezed, which means for us, for the time being, the only positive outlook which we have for the fixed income market now is EMD.’
The emerging markets, Mainert said, remain an idiosyncratic story and the CIO is positive from an equity standpoint as well. ‘It is emerging markets we are looking to in equities. It is Europe and it is also slightly overweight the US still.
‘In equities, and from a regional perspective, the order is EMs, Europe, Japan and finally US. But, overall – and that is the main message – we are still overweight equities, despite the latest turmoil.
Looking at the sell-off that occurred over the first six weeks of the year, Mainert believes some areas of the market wrongly categorised it as a risk-off event. ‘What we are currently observing is more of a liquidity-off than a risk-off event. Liquidity-off means that with a positive economic outlook there is still a chance to get positive news from the equity side.’
Focus on the Fed
After a biannual Global Policy Council meeting in Hong Kong in January, Mainert said a major theme to come out of the meeting of global CIOs was the need to look at expectations of what the Federal Reserve will look like under Jerome Powell.
‘The Global Policy Council is formed of more than 10 CIOs plus senior portfolio managers under the lead of our global strategist Neil Dwane. It discusses the overall trends and the strategic developments and possible secular topics,' Mainert said.
‘At our last Investment Forum, we filtered out six strategic themes: the first one was the Fed policy. We thought there was a risk that the Fed would do more than anticipated at the beginning of the year.
‘Our assumption at that time – and compared with the market we were already quite sceptical – was three interest rate hikes this year and two or three interest rate hikes next year. Now we think it could be four this year and three next year.
‘So the trend towards rising rates could – and did – cause higher volatility. That was one of the outlooks for 2018 and 2019 and our assumption was – and still is – that due to Fed policy, this will bring volatility back to the markets. Other key themes include China and Asia’s continuing success, global politics and trade, ageing Japan, disruption and risk management during the hunt for income.’