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Multi-manager View: Turbulent markets mean there is value in a micro approach

Both the Italian election result and the Cypriot woes have brought events in Europe firmly back into focus and my recent research trip to Paris was therefore very timely.

The Eurozone environment appears rather more balanced after the last 12 months and therefore in many ways it was not surprising that the overall tone of the conference was generally upbeat for equities.

As we embark on what is likely to be a more challenging period for fixed income markets, it will be particularly interesting to see how strategic bond managers cope after enjoying a strong following wind.

Despite the positivity, there were a few rumblings worrying about the complacency and sanguine nature of investors in the light of the Italian election result. Ultimately, political integration of the Eurozone will be a very long journey, with fiscal and banking union being the key facets. We are merely at the start of the journey!

Deficits are starting to come down but they are still deficits rather than surpluses, meaning that debt-to-GDP ratios remain under stress as demographics worsen. This further highlights the importance of politics within the Eurozone.

Against this backdrop the roles of both the US and China remain crucial to economics.

It is also hard to overstate the importance of central bank behaviour at present as it has been the pressure of liquidity that has largely pushed on risk assets. However, so long as the US economic recovery remains fragile, central banks are unlikely to change policy anytime soon.

Amid all of this macroeconomic uncertainty, it can really pay to have a more microscopic view of things. There are so many uncontrollable factors out there that focusing on the controllable issues makes a great deal of sense.

Just witness last year which saw equity markets climb the wall of macro worry. For our underlying managers, this means looking at what is happening on a company level and assessing their underlying health and prospects.

For us, it means avoiding big asset allocation calls and focusing our energies on finding fund managers who are able to consistently deliver returns and then blending funds together that complement each other by having different characteristics.

Once we have settled on and chosen a fund though, our work has only just begun.

In order to ensure that the funds remain at the top of their game, we continually monitor our selections and their peers using quantitative and qualitative methods which private investors simply do not have access to; at the slightest sign of weakness we scrutinise our selections vigorously so as to determine whether the issue is merely a blip or something more fundamental that requires action.

Although many of our multi-manager competitors increasingly focus on top-down asset allocation, we strongly believe in the value of a more bottom-up, micro approach.

Graham Duce is co-head of Aberdeen Multi-Manager Funds


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