Adaptation of defensive portfolios in a zero rate world
Global Investment Insights
with Debbie Alliston, Chief Investment Officer, AMP Capital, Multi-Asset Group
Debbie was appointed as the Chief Investment Officer for AMP Capital’s Multi-Asset Group (MAG) in March 2019. With more than $63 billion in multi-asset funds under management at 30 June 2020, MAG offers a range of contemporary multi-asset investment solutions and portfolio management services. MAG specialise in designing, constructing and managing diversified, lifecycle, ethical and single sector investment strategies. In her role as CIO, Debbie’s primary focus is as Portfolio Manager of AMP’s default superannuation lifecycle fund and the management of the broader team.
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It is evident that zero rates and QE programs are not going away any time soon.
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“The market environment continues to present ongoing and evolving challenges. It is evident that zero rates and QE programs are not going away any time soon, and those policies will also keep evolving. The design and implementation of what a ‘defensive’ portfolio looks like must be adapted – for example this might include expanded roles for currencies, derivatives, or defensive equities. The search for diversifying return streams also must include a role for alternative strategies. Results to date have been mixed and we are continuing to evolve the design of this part of the portfolio”, Debbie explained.
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The design and implementation of what a ‘defensive’ portfolio looks like must be adapted; this might include expanded roles for currencies, derivatives, or defensive equities.
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Debbie continued, “the defensive mix of assets at any time is expected to be broader than simply ‘high quality’ fixed income. Currency, defensive derivative positions and relative value strategies are expected to play larger roles. This is especially urgent when we consider an environment where central banks and governments succeed in reigniting inflation.
In addition, with interest rates and bond yields remaining low and equity returns expected to moderate, we expect the trend toward assets such as structured debt, private equity and debt, public private partnerships, co-investments and real assets to increase. In some areas, where we are confident of the opportunities, we expect to move against the trend and have greater exposure to stock selection.”
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With interest rates and bond yields remaining low and equity returns expected to moderate, we expect the trend toward assets such as structured debt, private equity and debt, public private partnerships, co-investments and real assets to increase.
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We asked Debbie what developments occurring in markets made the future of investing exciting for her and she highlighted three key areas:
The evolution of data and data science: The ability to source alternative data and use new tools to analyse it efficiently is an essential requirement. The pandemic (for example) required us to rapidly expand the data we were using to confirm what was happening to the economy and the health system. You don’t need to look far though to realise the scale and speed of what is happening across data/machine learning and AI.
Decarbonisation of portfolios: The impacts of this are monumental and they are happening now so we, as investors, need to understand the opportunities and risks.
Multi asset portfolio analysis: Risk analysis across multi asset portfolios has always been challenging and while we have always stress tested our portfolios and sought to understand different sensitivities we are continuing to improve those tools. Our internal efforts have been assisted by significantly enhanced platforms from external providers.
Debbie continued, “although the superannuation system has served members well in terms of investment returns, which have been driven in part by falling interest rates over a long period, the industry’s focus appears to have shifted more toward maximising outright returns than risk adjusted returns, since the GFC. In response, we are increasingly seeing regulation designed to define common investment outcomes.”
To achieve better outcomes for members, Debbie advocates for improved engagement, with more of a focus in the accumulation phase being placed upon the common goal of generating sufficient income in retirement. Debbie believes this would allow investment design and decision making to be more aligned to member needs and, ultimately enable our industry to better serve members.
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To achieve better outcomes for members, Debbie advocates for improved engagement, with more of a focus in the accumulation phase being placed upon the common goal of generating sufficient income in retirement.
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Debbie shared with us a personal story about her career journey and some important advice she has for others which has served her well.
“When I first started in the funds management industry in Australia I was frankly terrified. I was a country kid from NZ with no real understanding of markets or investing and was working with very confident, smart people. As I started to learn more I realised that I could make the learning process quicker by asking questions when I didn’t know the answers, by actively engaging in team discussions and by asking the right people for help.
It is true that there is no such thing as a dumb question and I believe that this curiosity and eagerness to learn, not only got me noticed, but gave me the confidence to ask for opportunities to improve my knowledge and career. Today, as someone who leads investment teams, I find those same characteristics are often held by some of our highest performers.
Disclaimer
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
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