July/Aug 2019
M U LTI-ASSET I NVESTM E NT
from non-traditional financial metrics. Are we therefore getting better information on potential risks – reputational or otherwise – in a manager’s portfolio, and how do we challenge on that and engage with it. It’s all about trying to work in partnership with advisers and how they structure their businesses. Obviously risk and return is paramount but we’re going beyond that and aiming to provide a more holistic solution. IFAM: Why should Janus Henderson be on the radar for advisers’ looking for appropriate multi-asset strategies for their clients? JH: We have a well-resourced team with a broad range of skills, a rigorous approach to managing money and a strong track record. We generate primary, in-depth research and work from it. We take much pride and effort to determine where we are in the cycle and then consider the investment opportunities which this affords us. We’re in late cycle slowdown now and so that period of high returns fuelled by QE has gone. Partly as QE has gone and because we’re faced with so much political uncertainty, we believe that with lower expected returns and increased likelihood of volatility, this is the time for active management to outperform. CHART 3 – ACTIVE MANAGERS ADD VALUE WHEN MARKET RETURNS ARE LOWER
Source: Morningstar Direct. Monthly data Januar y 1993 to Januar y 2019. US Large Cap funds versus S&P 500, includes closed or merged funds. Performance net of fees, since 1993. Past performance is not a guide to future performance
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If we look at chart 3, interestingly this shows us the market environments when active and passive approaches respectively outperform. It shows that active managers’ performance will lag during periods of elevated equity market returns for many reasons: they hold more cash, they don’t tend to chase the high momentum stocks. Conversely, the chart shows us that in weak markets, active management – and that’s just the average active manager - outperforms. We think that we’re in the middle area which has a slight positive tilt towards active. If on top of that we can bring in our manager research background of identifying styles and those characteristics which we think are appropriate, then it gives us a sound basis for the portfolios. As an example, in our funds which have core income strategies, we’re looking for quality management like that behind the Investec UK Equity Income fund – who are looking at the subset between dividend yield – a value metric – but also a subset with quality. They’re focused on seeking out those more dependable, cash generative businesses which are also returning cash to shareholders. At Janus Henderson, our team manages a range of funds in the multi asset space, all with a variety of investment objectives. We launched our Core Multi Asset Income range five years ago, strategies which are aligned to the Dynamic Planner risk bands of 3-6. The yield on these funds varies too as a function of the equity allocation. Everything on the desk however is run with the same investment ideology –a top down approach – but with differences by objective which accounts for the variance in the instrument selection, for example, in the more cost sensitive funds aimed at directly at consumers there’s even greater use of low-cost passive and smart beta. We said it earlier, but it’s all about that free lunch principle. The only free lunch you get – especially at this point in the cycle – is an increasing focus on being genuinely diversified, on bringing in alternatives and those assets with a lower correlation. It’s also about having the resources to identify them and having the breadth in mandates which we have, in order that we can implement those ideas effectively for our investors. Even though we say it ourselves, we have got a great team here. Together we have a strong track record but more
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