Why global multi-asset class funds are a must-have moving into a post-COVID world

BY CHRISTO LINEVELDT Investment Specialist, Coronation

Investors seeking offshore exposure may be wondering how best to go about it when traditional global asset classes look fully priced and many risks dominate the news flow. We believe that maintaining a well-diversified portfolio that comprises more than just one asset class remains the most appropriate way to navigate a challenging investment environment.

Here’s what investors need to consider:

Pressures are building

Most developed market economies are in the midst of a robust economic recovery that has provided tailwinds for equity markets and raised the prospect of higher global inflation.

The two factors driving these recoveries are the amount of stimulus injected into these economies and the progress these countries have made in vaccinating their populations.

Savings rates are up, balance sheets are in good shape, interest rates remain low and economic lockdowns over the past year have meant significant pent-up demand is waiting to be fulfilled as conditions improve. Against this backdrop, it’s not surprising that inflationary pressures are building up.

Diversification and active management as a better forward-looking strategy

With inflation among many risks facing global investors, we believe alphageneration through selectively identifying attractively priced shares, in addition to diversification into other asset classes, will be a better forward-looking strategy than just owning the index. Our multi-asset class portfolios typically have exposure to 40 - 60 shares, carefully selected out of a universe of 2 500 - 3 500, which means they don’t look anything like the index or our peers. This level of diversification is hard to replicate on an individual basis.

Our multi-asset class funds are further differentiated in that we hold many investment opportunities outside the traditional 60% equity/40% bonds multiasset portfolio in order to sweat every basis point of potential returns. Thus, while we continue to believe that it’s essential to have exposure to equities, we believe it is also important to include other assets – such as infrastructure, high yield income, global property and absolute return investments – in our multi-asset class funds. This is especially important in an environment where, in our view, the global bond index as a whole offers a negative real return over the next several years.

Each of our global multi-asset class funds benefits from exposure to these non-traditional assets, with the extent of their exposure in the portfolios dependent on the risk budget of the fund. This ranges from around 30% in the Global Capital Plus Fund, with a cautious risk profile, to 25% in the Coronation Global Managed Fund, a moderate risk balanced fund, and around 15% in the more aggressive Global Optimum Growth. The same funds have effective equity exposure of 28%, 59% and 80% respectively, with the balance held in cash and selected fixed income instruments.

Building well-diversified portfolios

Building portfolios that span six asset classes and look nothing like the index takes extensive research and a significant amount of investment experience and expertise.

It is the combination of this expertise and our robust and tried-and-tested investment approach that enables our multi-asset class funds to provide investors with exposure to a wealth of opportunities in traditional and non-traditional asset classes, actively balancing risk and returns to deliver on our investors’ various objectives across the fund range.

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