GLOBAL inflation, rising energy prices, Evergrande and the Chinese property market, big swings in equity markets around the world, rising bond yields, trillion-dollar-spending US packages in doubt.
It’s a tricky time to be an investor. And that’s before geo-politics and Covid risks are considered.
For investors, it’s about having a strategy and sticking to it, says Michael Blayney, Pendal’s head of multi-asset.
“The recent sell-off has been nothing compared to last March, but people are getting a bit more concerned about inflation,” Blayney says. “Bond yields are rising and equities are a bit weak.
“In these circumstances you have to have a sensible investment process which you anchor all your decisions to.
“The alternative — managing your portfolio based on what’s in the headlines — is a good way to lose money,” he says.
It’s about ensuring an investor’s asset allocation is based on their long-term strategy.
“When times get tough you stick to your strategy. When markets are doing well, you take some profits. When markets are lower you can top up your holdings. The volatility can work in your favour,” he says.
Blayney expects more volatility in global markets.
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“This massive fiscal and monetary stimulus can’t go on forever. At some point you have to reintroduce a level of restraint…. and as we go through that, there will be choppiness in markets.
“We’re not expecting a massive market correction but it is an environment where it pays to have a little bit of extra cash in your portfolio so you can jump on opportunities when they emerge.”
The best investors manage their portfolios through volatility.
“At the moment, bond markets are expensive. Not ridiculously but they are still somewhat expensive,” Blayney says.
“You’ve also got increasing inflationary pressures and the winding back of very, very easy monetary policy. You put all that together and you have negative momentum in the bond market. So for us, we are invested a little bit less in government bonds at the moment.
“In terms of growth assets, it’s about saying ‘let’s take on a bit of risk but try and find places which aren’t directly in the most ferocious part of the storm’,” he says.
“For example, if you have bond yields rising and you look at the tech names which have been very, very expensive in part propped up by the low-bond yields, that part of the market has more risk attached to it.”
“Instead look for some good niche opportunities like United Kingdom equities and some emerging markets. Mexico is an example because it’s been cheap for a long time,” Blayney says.
“We also invest in dividend futures in Europe which is a bit unusual because it’s linked to the dividend component rather than the price component of a stock.
“And then there’s the assets that can provide a slow and steady yield — things like listed renewables and some other forms of listed infrastructure.
Blayney says value and small cap stocks have been outperformed by technology stocks in recent years, meaning there’s opportunity for them to catch up.
“You need to take exposure to some of these sorts of assets to keep some growth in your portfolio without being exposed to overvalued stocks, that are vulnerable to a correction.”
Michael Blayney leads Pendal’s multi-asset team. Michael has more than 20 years of investment management and consulting experience. He was previously Head of Investment Strategy at First State Super and head of Diversified Strategies at Perpetual.
Pendal’s diversified funds provide investors with a variety of traditional and alternative asset classes and strategies.
The team — which also includes Stuart Eliot and Allan Polley — manages our multi-asset portfolios with a focus on strategic asset allocation, active management and tactical asset allocation.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at October 5, 2021.
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