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The value of a multi-asset approach to investing

November 2017

Jonathan Armitage, Chief Investmentt Officer MLC, has over 20 years' investment experience and has been overseeing the investment team at MLC since 2013. In this interview he shares his views with Benchmark magazine on why he believes a multi-asset investment approach makes sense for the majority of Australian investors.


Why should investors be considering a multi-asset approach to achieve their financial goals?

MLC has been building and providing investors multi-asset portfolios for over 30 years and we continue to believe it is a great way for investors to achieve their financial goals.

At MLC we offer three sets of multi-asset portfolios. All are actively managed by our highly experienced Capital Markets team using our Investment Futures Framework. The first set is the Inflation Plus portfolios, which are managed to achieve returns above inflation. To attempt to achieve a real return, ie a return above inflation, these three portfolios are focused on managing downside risk. They have a flexible asset allocation so that we can reduce exposure to asset classes when we consider risks are too high. These are our most actively managed portfolios and can have higher weightings to alternative or non-traditional assets.

The second set is the MLC Horizon portfolios which are seven portfolios where we aim to achieve a return above a market benchmark. We move the asset allocation within ranges around a benchmark to improve returns and reduce risk. These portfolios invest mainly in traditional asset classes but also include some alternatives too.

And finally we offer three Index Plus portfolios, our lowest cost set which are expected to produce returns closest to the benchmark. We move the asset allocation within ranges around the benchmark to attempt to reduce risk. To keep costs down we use mostly lower cost asset classes and index enhanced managers.


So why does multi-asset investing make sense in the current investment environment?

We've been hearing for some time now that we’re in a low growth, low return environment. It’s an extremely challenging investment environment where valuations and fundamentals have diverged – the VIX – a key measure of market expectations of near term volatility – is at historic lows despite a complex array of unusual risks. These include a new US administration, difficult geopolitical challenges and extraordinary monetary policy settings which have not resolved the high levels of debt. Equity valuations appear inconsistent too. It’s our view the potential consequences for market volatility are underappreciated.

 

So how are investors going to achieve the returns they need?

It’s in this type of environment where you can see the potential benefits of investing in a multi-asset portfolio. Having access to a range of potential sources of return and risk management strategies, such as alternative asset classes, reduces dependence on how well share markets are performing and diversifies risk.

 

Can you give us some more details around the types of alternative asset classes MLC provides access to?

Our multi-asset portfolios have meaningful allocations to alternatives due to the substantial benefits we believe they can provide. These are asset classes that most investors would not normally be able to access on their own.

Alternative strategies help increase diversification and potentially smooth returns of portfolios because their returns are more independent of what’s happening in share markets. As an example, private equity is an asset class we have allocations to and we have been managing private equity portfolios for 20 years. Private assets allow investors to access companies not found in listed equity markets. Also, our Low Correlation Strategy aims to generate a return above cash and deliver returns that are independent of or uncorrelated with share market performance. One feature of these strategies is they can generate positive returns when share markets fall.

Harnessing these innovative alternative strategies has delivered beneficial long-term returns for investors, after fees, particularly in volatile markets. However as we know, past performance is not a reliable indicator of future performance.

 

In recent years there has been a significant rise in the popularity of index or passive investing. Do investors still need to decide between an active or passive investment solution?

As investment managers, delivering strong investment outcomes for clients is our primary focus. In a difficult investment environment, having a low-cost investment solution can be an attractive alternative for some investors. We offer the MLC Index Plus portfolios – multi-asset portfolios with a blend of index, enhanced index and active strategies. The blend of active and index is important because we believe there are aspects of the portfolios, like the fixed income exposure, where investors are arguably better off having actively managed to reduce risk.

These portfolios also come with extra features investors aren’t likely to find available elsewhere.

We actively manage the asset allocation of the portfolios and also employ an enhanced index exposure in the Australian shares strategy.

 

Given the ongoing changes in the financial services industry and investment landscape, is MLC seeing any changes in the way customers are looking to invest?

 

At MLC we’ve always been very focused on understanding investors and their changing needs. That’s why we provide three different sets of multi-asset portfolios. Over the last few years we’ve expanded our range of multi-asset investment offers based on the evolving needs of investors. Recognising one size does not fit all, we’ve added the Inflation Plus and Index Plus portfolios to our traditional Horizon portfolios. This enables advisers and investors to access our investment intellectual property in the way most relevant to their needs and objectives.

We firmly believe, with these three sets we can provide solutions that meet a broad range of investor needs.

We’re also proud to say that our multi-asset portfolios are highly rated by independent research houses.

 


Important information

This publication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (MLCI) a member of the group of companies comprised National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (‘NAB Group’). Any references to “we” include members of the NAB Group. An investment in any product or service referred to in this publication does not represent a deposit or liability of, and is not guaranteed by NAB or any other member of the NAB Group.

This information may constitute general advice. It has been prepared without taking account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.
  
Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.
  
Any opinions expressed in this publication constitute our judgment at the time of issue and are subject to change. Neither MLCI nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this publication. Any projection or other forward looking statement (‘Projection’) in this document is provided for information purposes only. No representation is made as to the accuracy of any such Projection or that it will be met. Actual events may vary materially.

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