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Asset allocation: what our multi-asset team learned in its latest strategic review

The long-term outlook for investment markets is more positive than it has been since 2014, argues Pendal’s Alan Polley

THE long-term outlook for investors is more positive than it has been for almost a decade, giving reason for optimism despite the volatility of 2022, says Pendal’s Alan Polley.

The forecast comes from Pendal’s multi-asset team, which has just completed its annual strategic asset-allocation process, looking at long-term trends and expected returns across asset classes.

Key to the forecast is improved returns for bonds. US 10-year treasury yields have risen almost 3 percentage points in 12 months, offering attractive yields for the first time since the global financial crisis.

Bonds can once again play a defensive role in a traditional balanced portfolio — often termed a 70:30 portfolio for its split between equities and fixed income — as well provide a reasonable level income.

This is even more important for conservative portfolios, which tend to have a higher allocation to bonds.

“The investment outlook now is more normal than it has been for a decade,” says Polley, a portfolio manager in the multi-asset team.

The 70:30 portfolio is not dead

“Over the past five or so years there’s been commentary declaring the death of the 70:30 portfolio.

“Not only was it never dead, but now it’s definitely back and in a much stronger position than it has been for quite some time.”

That’s a good thing for investors, says Polley.

A significant implication of low returns over the past decade has been a move by investors up the risk curve into private markets and illiquid assets. Many saw no alternative.

“Looking forward, you’d think the marginal dollar that’s been chasing illiquid assets will start to dissipate, and this issue will be compounded with lagged higher discount rates.”

Investors looking for clues from history as to how markets will perform should look back to the 90s and early 2000s — because the ultra-easy monetary policy distortions of the post-GFC world are over.

“We’re going back decades prior to the GFC for a reference point when central banks weren’t artificially manipulating markets with low cash rates and quantitative easing.”

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Lift in long-term returns

Across all asset classes, Pendal’s review shows forward-looking, long-term returns have lifted about 1.5 per cent on average from last year.

“That additional 1.5 per cent really increases the chances of a portfolio achieving its return objectives.”

The multi-asset team’s strategic asset allocation process is run annually to analyse long term investment market behaviours.

“It’s important because all investors have a return objective and risk tolerance. The strategic asset allocation process is about building an optimal portfolio that meets those risk tolerances and long-term return objectives.

“Over the long term, what really determines your outcome is your risk tolerance, which leads to whether you invest in a 70:30 fund or a 30:70 fund or 90:10 fund.

“This is where having a long-term perspective matters,” says Polley.

“The whole point of investing is that over the long term, through the cycle, you expect to get paid for incurring the short-term ups and downs.

“You need to stay the course with a long-term investment strategy that’s consistent with your risk tolerance.

“Right now, because central banks have been materially unwinding their exceptionally loose monetary policy and markets have sold off and become better value, the long-term opportunity set is looking better than it has been for a while.”

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About Alan Polley and Pendal’s Multi-Asset capabilities

Alan is a portfolio manager with Pendal’s multi-asset team.

He has extensive investment management and consulting experience. Prior to joining Pendal in 2017, Alan was a senior manager at TCorp with responsibility for developing TCorp’s strategic and dynamic asset allocation processes covering $80 billion in assets.

Alan holds a Masters of Quantitative Finance, Bachelor of Business (Finance) and Bachelor of Science (Applied Physics) from the University of Technology, Sydney and is a CFA Charterholder.

Pendal’s diversified funds provide investors with a variety of traditional and alternative asset classes and strategies.

Find out more about Pendal’s multi asset funds:

Contact a Pendal key account manager here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at November 16, 2022. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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