Valentijn van Nieuwenhuijzen
Despite the fact that financial markets are currently back in calmer waters, investors are still adjusting to the ‘new normal’ of persisting negative yields, political uncertainty, slowing growth and ultra-low savings rates. Uncertainty about US/global growth, China, emerging markets, oil price developments and central bank policy are among the main drivers of market worries.
Those worries are a constant, prompting investors to look for different solutions. NN Investment Partners believes that multi-asset funds are an attractive investment in this uncertain market environment, offering a variety of return sources.
“So much of where the markets go is set by psychology,” says Valentijn van Nieuwenhuijzen, Chief Strategist and Head of Multi-Asset at NN Investment Partners. “Behavioural factors are almost as important a driver of financial markets as fundamentals. Mapping the mood of ‘Mr Market’ by finding and assessing signals to understand the behaviour of the market allows for differentiation in positioning rather than getting lost in the noise”.
In today’s environment multi-asset solutions provide a compelling alternative to single-asset strategies by providing access to a wider set of return drivers with the ability to keep the overall portfolio risks limited. Analysis by NN IP shows that investors’ preference for a wider set of return drivers and limited downside risk peaked in 2015 to EUR 200.1 billion inflows1 (see figure below). Since December 2014, multi-asset has accounted for 22.2% of cumulative net flows of BOP (Beginning of Period) assets under management, second only to property.
Valentijn van Nieuwenhuijzen, Chief Strategist and Head of Multi-Asset at NN Investment Partners: “Market structure changes from time to time as the dominance by type of participant, level of market integration or investment themes shift. The multi-asset approach allows for dynamism in portfolios. This element of flexibility also explains the significant inflows finding their way into the sector, emphasizing the diversification benefits that multi-asset solutions offer in all market environments. Innovative risk management is key to prevent underestimation of risk and overestimation of diversification benefits (assuming you understand correlations better than you actually can!).
The most added value can be gained from a combination of robustness against unexpected shocks and tactical asset allocation, which has become a significant contributor to the total return of a portfolio. The forecasting power that is needed for this builds increasingly on behavioural analysis”.