2016: The year of multi-asset investing (again)

February 22, 2016 Categories: Investment, Investment Strategy
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A little over a year ago, I wrote : “We believe that an outcome-driven plan and a multi-asset approach can help investors practice disciplined goal-setting when coupled with flexible, opportunistic investment execution.”

In that blog post, I said that I’d check back with readers in a year and see how we are doing. And I have to say – what I wrote then still stands. Moreover, events in 2015 continued to show how this approach can give investors powerful tools to help manage market uncertainty, risk, and potential up-side opportunities. Russell Investments’ multi-asset approach helped many of our portfolios navigate last year’s tough market. Our portfolio managers used strategies that minimised downside risk, limited their exposure to the most impacted asset classes (commodities, emerging market equities) and dynamically managed the overall equity risk (reducing exposure throughout 2015).

In many ways, it was remarkable to see how the investing climate in 2015 mirrored what we saw in 2014. There continued to be geopolitical upheaval that impacted markets, though the countries involved changed.

For example, in 2015 there were surprising moves in China (that continue today) and increasingly divergent actions by central banks as the U.S. Federal Reserve (the Fed) finally hiked interest rates while the European Central Bank (ECB) took steps to further lower interest rates and extend quantitative easing. Against all that, we saw encouraging but not rapid economic growth – stronger in the U.S. than in Europe, hence the Fed’s confidence in raising rates.

So what are the key considerations our multi-asset portfolio managers feel are important for investors to keep in mind now? The obvious is that surprises will always be, well, surprising, and apt to send markets into gyrations. And, as seen in the volatile first month for markets globally, there is plenty of uncertainty ahead in 2016. Will the U.S. economy continue its expansion? Can the ECB get Europe off the zero-growth path? Can China finally pull off a “soft landing?” What will happen geopolitically in the Middle East?

With these questions in mind, I have three resolutions investors might consider through 2016:

  • Stay diversified. I just alluded to this above, but it’s a fundamental consideration. We believe that diversification is more than just filling your portfolio basket with lots of different eggs. It’s a matter of having clear beliefs and expectations about markets, high-conviction insight into potential opportunities and risks, and flexibility to allocate portfolios accordingly.
  • Watch and adjust for volatility. We saw plenty of volatility in 2015 – especially in August through early in the fourth quarter. Expect more of the same in 2016. While diversification helps hedge against that, so does understanding investor behavior. Being aware of herding behavior and having a disciplined investing approach may help investors avoid following the crowd to their own investment detriment. As already seen, we expect that 2016 will offer plenty of opportunities for dynamic portfolio allocations that can benefit from the greed and fear that can often grip markets.
  • Consider your outcomes. We work hard to build and manage portfolios that accurately reflect what different investors need at various times of their lives. Typically, that can mean more risk early in someone’s investing career, or less risk as retirement nears. But it isn’t always as straightforward as that – as some of my colleagues have written, taking on more risk post-retirement may be a better strategy than de-risking. It all depends on what outcomes you’re trying to achieve.

I remain convinced that 2016 is the time, now as much as ever, for a multi-asset investing approach that is actively managed to help meet investors’ desired investment outcomes.

Jeff Hussey Global Chief Investment Officer

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