Against a volatile market backdrop, “investing in multi-asset products is one of the most effective ways to enhance risk-adjusted returns’’, according to Matteo Germano, global head of Pioneer Investments' €70 billion multi-asset strategies.
“We believe investors should consider increasing risk in their portfolios over the next six months but also diversify to manage potential risks.’’
Asset diversification by itself is not enough. He believes that informed dynamic asset allocation within an enlarged investment universe has the ability to maximise returns. Understanding risk and seeking to eliminate unwanted risk through active management may help mitigate the downside. Pioneer Investments has recently strengthened its multi-asset offering with a Target Income strategy, aiming to address the needs of investors who seek income but want to avoid concentration risk in one asset class. Germano states that income-generating strategies are a key growth area at Pioneer Investments.
Multi-asset products are expected to benefit as investors start rotating away from traditional fixed income products in search of more attractive yields. The asset class allows investors to aim to ramp up returns while simultaneously helping to manage associated risks of investing in higher yielding asset classes.
“Our disciplined risk management approach using dynamic draw-down management techniques as well as scenario-based stress testing helps us hedge appropriately against risks” says Germano. “Our proprietary risk budgeting framework allocates to strategies based on their risk contribution, leveraging on low correlations to optimise overall portfolio risk.”
To this effect, portfolio management works closely with a dedicated portfolio construction team who help them monitor and manage risks effectively. “Risk diversification is also achieved through diversifying across alpha sources.”
Combining strategies with different time horizons, balancing top-down macroeconomic views with bottom up security section and allocating across absolute return and relative return strategies can help achieve this.
Asset allocation is driven by Pioneer Investments’ experienced team of portfolio managers who collaborate with an extensive global research platform of 70 analysts to select the highest conviction ideas.
“We recognise the growing importance of alternative asset classes, such as infrastructure and real estate and aim to grow our presence in real assets through dedicated resources,” says Germano.
Over the next six months, Germano says, emerging markets are likely to slow down further given their deteriorating macroeconomic fundamentals. “We have downgraded our outlook for emerging markets, although we are optimistic on the prospects of developed markets,”
“The developed world is stabilising – Europe is exiting smoothly from the recession and the economic climate in the US is improving. However, we remain concerned about potential policy mistakes and a fragile labour market.”
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Date of First Use: 24/10/2013
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