If only we had a crystal ball, investing would be so much easier. Particularly in the past year, it has often seemed as if uncertainty is the only certainty for asset managers, advisers, and their clients.
Amid geopolitical developments and a slowing global economy, an increase in market volatility is a significant possibility. That’s why we believe that long-term, multi-asset investing will continue to offer one significant advantage: the protection offered by portfolio diversification.
But how might the mechanics or nuances of multi-asset investing change going forward? And what are the external forces that will shape its future direction? Multiple forces at play could have an impact on how multi-managers approach their strategies, including changing demographics, regulatory requirements, and investors’ drive for socially responsible investing.
The traditional “balanced” portfolio of equities, bonds, and cash positions will remain a staple for many investors, but as market conditions change, the use of alternatives will become increasingly important ways to unlock value for investors. A more flexible mix of assets can provide a better balance of market risks.
Of course, the more sophisticated the asset mix, the higher the costs involved, which will be an important consideration for multi-asset managers. Regulatory agencies have put charges under the spotlight with the Markets in Financial Instruments Directive II (MiFID II) and the requirement to disclose transaction costs alongside ongoing charges.
Cost disclosures are only a part of the “value for money” conversation, as regulators seek to stem the economic impact of poor-value investment vehicles. Consequently, firms will need to be able to prove that their products offer value, fair pricing, and clear disclosures for consumers. It’s increasingly clear that effective stewardship and governance will be more important than ever.
This issue of stewardship dovetails with the ongoing trend towards Environmental, Social and Governance (ESG) investing, which aims to balance returns with measuring the impact of sustainability and ethical concerns. While the definitions and metrics can be fairly flexible, the growing demand for ESG options is undeniable, forcing fund managers to rethink how they select assets.
Whatever the market conditions in the next few years, multi-asset managers will need some essential resources: a thorough governance process with independent oversight; a long-term investment horizon and patience amid volatile conditions; an open attitude to ESG issues; and creativity and flexibility in seeking out new opportunities for customers to build wealth.
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