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A multj-asset strategy: beyond a traditjonal approach for returns

Tina Yao of BNP Paribas Investment Partners explains why a multj-asset class solutjon is appropriate for investors today, and reveals how to determine the allocatjon of assets.

With the global investment landscape so volatjle, traditjonal ways to access the markets carry higher risk but yield lower returns. As a result, says Tina Yao, head of multj-asset solutjons for BNP Paribas Investment Partners in Asia, there seem to be only two investment

• ptjons today. “Invest in instruments

innovatjve and look beyond the tradi- tjonal investment approach.” Her team, she says, has been working for the past 10 years in delivering prod- ucts that ofger an aturactjve potentjal return and a balanced risk profjle, despite prevailing market conditjons. TINA YAO

BNP Paribas Investment Partners

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“Investment managers need to be more innovatjve and look beyond the traditjonal investment approach.”

that yield higher returns but have a roller-coaster journey, or invest in safer assets that deliver low returns.” But Yao and her colleagues believe investors should be given more optjons. “Investment managers need to be more The fjrm’s multj-asset income team de- termines which asset classes are most suitable to a stated investment objectjve and then invests in those asset classes. This involves a dynamic investment ap- proach and a fmexible asset allocatjon,

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to be able to respond quickly to any changes in increasingly volatjle markets. WHY MULTI-ASSET SOLUTIONS Yao says the fjrm’s clients want to benefjt from the upside in a partjcular

• market. Plus, they also want a smooth
• ride. “Avoiding the volatjlity and uncer-

tainty is important. That is what we aim to deliver,” she explains. The fjrm’s most recent European strat- egy, born about a year ago, speaks volumes about what clients really want and what is most appropriate based on market conditjons. The European strategy aims to distrib- ute a regular income and deliver capital growth, with a very reasonable risk

• profjle. Since the fjrm believes in fmex-

ible asset allocatjon, European equity can fmuctuate between 0%-60% and European cash instruments are sanc- tjoned to go as high as 80% in adverse market conditjons. This strategy was created for Asian clients who wanted to partjcipate in the recovery of the European markets but needed a way to identjfy and invest in local assets without being exposed to unnecessary risk, explains Yao. A typical multj-asset investment strat- egy, she says, starts by looking at these six key assets: equity, real estate secu- ritjes, high yield bonds, investment- grade corporate bonds, government bonds, and convertjble bonds. “We then do a long-term optjmisatjon and defjne the risk and return profjle of the product based on the difgerent asset classes and their prospects in the market,” says Yao. Asset allocatjon is the next step. The decision is based on evaluatjon on valuatjons, economic fundamentals and investor behaviour. To come to an asset allocatjon conclu- sion, the decision maker has to weigh

• n difgerent factors to see which one

is most likely to drive the performance under the current environment. This is a complex decision, adds Yao. It relies on the team’s broad experience and deep understanding of the markets. However, once the asset allocatjon is decided, it is the role of the asset class specialists to pick the individual securi- tjes for the strategy. Yao says the fjrm believes this is a betuer route compared with using a fund of funds approach; it allows them to betuer tailor their investments to match their market views and also to retain the fmex- ibility and agility required to execute such a strategy. “Our team works like an orchestra, and the multj-asset solutjons team is like a music conductor,” she adds. “We decide how much potentjal output we want from each instrument. Once we decide

• n that, we leave them to perform.”

“By diversifying across difgerent asset classes and relying

• n dynamic asset allocatjon and actjve management, the

aim is to create strategies which ofger investors a regular income with a reasonable risk profjle.”

For example, afuer the fjnancial turmoil from 2008, it became clear that simple diversification was not enough to protect a portgolio and produce reason- able returns. Therefore, a fmexible, outcome-oriented, total return approach is what’s needed. “Multj-asset income strategies are a good optjon under such circumstances,” says Yao. By diversifying across difgerent asset classes and relying on dynamic asset allocatjon and actjve management, the aim is to create strategies which ofger investors a regular income with a rea- sonable risk profjle, she adds. ACTIVE MANAGEMENT: A VALUE ADD The focus on fmexible asset allocatjon is tjed to the fact that asset returns tend to stabilise over the long term but over the short term, it can be volatjle. Over a period of 20 years, for example, performance across asset classes tends to be relatjvely close to the benchmark. But it is the shorter term that worries investors and fund managers. Asset performance can be extreme over short tjmeframes, making actjve man- agement a necessity. “That is the right way to improve performance and we aim to add value on that front,” says Yao.

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