A golden age for active and true multi-asset

Over the past decade, investors have increasingly turned to equities as falling interest rates have made bonds more and more unattractive. Meanwhile, commodity prices have also been in a steady decline following the commodity super-cycle that came in the wake of the opening of China's economy and increasing globalisation at the beginning of this century. Many successful multi-asset funds have consequently had an increased equity allocation in recent years and often focused on managing this share of the portfolio relative to the cash ratio.

COVID-19, war, de-globalisation, the fight against climate change, demographic change and the implemented interest rate turnaround are now causing a realignment of markets that is calling into question many of the patterns and strategies of the past decades. Even if the acute problems are overcome, an environment comparable to that of the past decades is not to be expected. Investors must be prepared for this. We are convinced, therefore, that we are at the beginning of a golden decade for "true" multi-asset portfolios, that is, an active and broad diversification across all asset classes. We identify the following three main reasons for this.

• The starting point for "true" multi-asset portfolios is more favorable than it has been for a long time, with cheaper equity valuations, higher interest rates and risk premia on bonds, and the onset of a commodity super-cycle.
• Higher inflation over the medium term, and especially higher inflation volatility, requires broad diversification across asset classes, segments and regions, as well as flexibility across all assets.
• Changes in market structure and behaviour offer increased opportunities across all asset classes.

We believe that the focus of investors should, therefore, shift from equities and the tactical management of equity exposure to a broad positioning in order to exploit the return and diversification opportunities of all asset classes. Especially as we also expect that government bonds and equities will not quickly find their way back to the negative correlation of the last two decades.

Read the full publication here