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We invest for purpose
Markets are constantly moving – and when conditions change investors must rethink their asset allocation.
Our flexible and dynamic approach draws on a global opportunity set to meet the multiple, often competing objectives of our clients. The goal is to tie all investment decisions to the ultimate objective of the portfolio.
Time has shown that asset allocation decisions are the dominant driver of overall portfolio returns and multi-asset investing provides risk and return benefits that are not typically achievable by investing in a single asset class.
Why invest in the First Sentier Real Return Fund
We believe that holding a large number of asset categories doesn’t provide real diversification in today’s markets. To solve this challenge we have developed the First Sentier Real Return Fund, an objective-based approach to investing that combines the benefits of long-term asset allocation with dynamic short-term tilts to enhance returns and abate risks.
The fund aims to protect against inflation and provide growth by achieving a positive return of 4.5% in excess of Australian CPI (trimmed mean) over rolling five year periods.
Unlike traditional multi-asset portfolios, there is no requirement to allocate to any particular investment type. We only invest in opportunities that offer the best risk-reward for investors, blending a combination of assets together across the full spectrum of equities, bonds, currencies and commodities that have the highest likelihood of delivering on the performance target while also considering sequencing risks.
By dynamically shifting exposures, we aim to take advantage of short-term investment opportunities as they arise. History has shown that being dynamic, making well-timed changes to the investment mix, can have significant positive influence on long-term performance.
Asset allocation when the future ain't what it used to be
Over the past 40 years, strategic asset allocation has successfully relied on diversification alone to deliver strong long-term returns. With the diversification benefits historically delivered by equities and bonds weakening in today’s markets, and expected returns across all asset classes falling lower, portfolios need to adapt to deliver on their objectives.
Do not expect the same dynamics going forward
Equities valuations have only been higher twice before in the last 100 years, in 2000 and 1929. Based on these valuations, history indicates that expected returns over the next 5 to 10 years will be much lower.
Source: Robert Shiller, Yale University, data to 30 June 2020. Price-Earnings Ratio (lhs) is the US equity valuations are based on the cyclically adjust price earnings ratio, or CAPE (Shiller PE). Long-Term Interest Rates (rhs) is the 10 year US treasury yields, or equivalent long term rate.
The market expects returns to fall across all major asset classes over the next 5 years
Source: Bloomberg and First Sentier Investors proprietary models. These are expected returns based on internal assumptions as at 30 June 2020. They are predictive in nature and therefore not guaranteed to occur. Known or unknown risks and uncertainties and inaccurate assumptions may result in them differing materially from results ultimately achieved.
Where does a real return strategy fit within a broader portfolio?
Investing in an objective-based multi-asset strategy with flexible investment ranges free your manager to deliver more consistent returns with less risk, but how can a fund that moves in - and out - of asset classes fit within your broader asset allocation?
Here are three ways an objectives-based fund can be used in your portfolio:
An objective-based strategy can be added to the equities segment of your portfolio with the aim of delivering 'equity-like' returns with lower volatility.
An objective-based strategy could fall into the 'growth alternatives', 'defensive alternatives', or 'absolute return' categories, depending on the fund.
Core or whole portfolio solution
Use your objective-based strategy as a one-stop-shop for delivering on an overall portfolio objective - including outsourcing of asset allocation and governance.
Whitepapers and other resources
How we are positioned for markets ahead
We explore our forward-looking return expectations and share the latest changes to our asset allocation every six months.
Research papers from the Multi-Asset Solutions team
Our experience working with institutional asset owners has given us significant insight and practical appreciation of the challenges investors face. In an environment marked by a combination of low interest rates, low inflation, low to moderate economic growth, and risk-on risk-off investment sentiments, we share our research into techniques and solutions that can help achieve long-term investment objectives.
Issue 4 – Target benefit retirement schemes
Issue 6 – Strategic asset allocation
Issue 7 – Dynamic asset allocation
Issue 9 – Why Multi-Asset?
Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.
As global multi-asset investors, we partner with our clients to provide solutions that maximise the probability that they will achieve their investment objectives. We assess our client needs based on three key criteria: risk tolerance, investment horizon and return ambition level. We utilise third party monitoring services for our direct holdings.