Australian investors need broader investment palette to prepare for 2016 says Russell Investments senior investment strategist
Award-winning Russell Investments shares multi-asset checklist and six 'signposts' for investors
SYDNEY, 14 December 2015 – Investors in 2016 may need new strategies to combat an even more challenging environment of continued market volatility and lower returns. This is the forecast of Russell Investments' senior investment strategist, Graham Harman, in the firm's recently released Signposts for 2016. The report states that investors will no longer be able to rely on simply buying and holding shares and bonds. Instead Harman recommends investors harness active management, downside protection as well as a broader palette of assets, currencies, exposures and strategies.
"Shares are expensive, interest rates are at historic lows and term deposits are offering meagre returns close to 2% in Australia," explains Harman. "The traditional investment universe offers limited opportunities. It's going to be difficult for even skilled investment managers to identify attractive return opportunities."
To face these expected challenges, global and domestic investors alike are increasingly relying on multi-asset solutions, focused on specific risk and return objectives, such as income, growth or downside protection. Casey Quirk recently forecasted more than $3 trillion of demand between now and 2020 for multi-asset and benchmark-agnostic strategies worldwide, driven by a focus on outcomes.
However, Harman warns that static, single-asset investment approaches will face severe headwinds in 2016 as investment opportunities remain limited and stretched valuations raise the risks associated with equities. Instead, he believes the best way to combat the upcoming challenge is to take a dynamic multi-asset, multi-strategy approach, armed with a broad palette of assets, managers, strategies and exposures.
Andrew Sneddon, Russell Investments' Senior Portfolio Manager says investors need to be wary when choosing multi-asset solutions. "There are significant differences between multi-asset funds' objectives, investment processes and outcomes. It makes 'apples-to-apples' comparisons tough."
Drawing on its credential as Money magazine's 2016 Best Multisector Fund Manager for the third consecutive year, Russell Investments has just released a practical checklist to help financial advisers and institutional investors evaluate multi-asset solution providers more accurately.
The checklist advises investors to closely examine each capability required to design, construct and manage multi-asset portfolios to ensure they are well positioned to take advantage of investment opportunities and avoid emerging risks. The checklist offers criteria for assessing whether an investment process is truly robust and suggests questions investors should ask their providers about portfolio risk control, especially in changing market conditions.
"We believe an industry best-practice, multi-asset solution should feature truly dynamic portfolio management, effective global diversification, downside protection and an open architecture approach to finding the best managers and strategies around the world," says Sneddon.
He suggests that investors should ask multi-asset providers to describe how they handled the recent slowdown in China and market volatility in August 2015. "For example, at Russell Investments, we applied protection to our multi-asset portfolios' allocations to global and emerging markets shares, while increasing allocations to cash and volatility strategies designed to shield the portfolios in that environment."
Sneddon also shared that the firm will continue to build on the success of its integrated, dynamic and innovative portfolio approach. In particular, Russell Multi-Asset Growth Strategy (MAGS) Fund has successfully achieved its fund objective of 4% real returns since inception to date, while allowing investors enjoying a smoother ride – offering equity-like returns with lower volatility.
Sneddon said he believes these attributes will become even more important as investors face an increasingly challenging market environment with significant downside risks.
"Facing lower returns, higher volatility and limited opportunities in traditional assets, successful multi-asset providers need to have strong capabilities in not just one or two, but every aspect of the active investment process. Further, they need to be able to manage them in a seamless, well-integrated way to survive and thrive in this environment."About Russell Investments Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors–using the firm's core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures–to help each achieve their desired investment outcomes. Russell Investments has more than AUS$337 billion in assets under management (as of 9/30/2015) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has $2.4 trillion in assets under advisement (as of 12/31/2014). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than $1.7 trillion in 2014 through its implementation services business.
Headquartered in Seattle, Washington, Russell Investments operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago and Milwaukee. For more information about how Russell Investments helps to improve financial security for people, visit https://russellinvestments.com/au or follow @Russell_Invest.
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