WELCOME TO FUNDSTALK – DIVERSIFICATION
Since the 2008 financial crisis, multi-asset funds have grown in popularity among investors seeking to manage risk and protect capital while also targeting growth. At the time, the crisis had focused attention on the risks inherent in investing in a single asset class, which helped shape the rise of multi-asset portfolios.
And now, following the unprecedented events we’ve seen resulting from the COVID crisis, the benefits of portfolio diversification are back in the spotlight. In March 2020, during the worst of the market downturn, no asset class was spared from the dramatic sell-offs. But in the aftermath, the divergence in performance between sectors, regions, and asset classes has reinforced the view that different types of investments will behave differently under prevailing market conditions. This correlation, along with expert asset allocation, forms the foundation of diversified, multi-asset investing.
We know that as advisers, you will have been having some very challenging conversations with your clients, who are understandably concerned about the value of their investments. The timing has never been more vital to help clients understand how multi-asset approaches and strategies can help them meet their investment goals.
Asset allocation within multi-asset funds has moved on significantly from the classic ‘balanced portfolio’ split of 60% equities/40% bonds, for example. Many multi-asset offerings are now far more diverse and sophisticated. Expert asset allocation is at the heart of ensuring the risk/return profile remains appropriate for a client’s investment objectives and risk tolerance, often taking into consideration where they are on their retirement journey as well.
The COVID crisis of 2020 has presented advisers with a fresh opportunity to discuss clients’ attitude to risk and to explore the potential benefits of multi-asset investing’s disciplined approach. In this issue of FundsTalk, we take a deep dive into the benefits of portfolio diversification. We also present primers on three asset classes – high yield bonds, emerging market government debt, and real estate investment trusts – that, in our view, can make for attractive portfolio diversifiers, as well as providing a much-needed income stream in this historically low interest rate environment.
On behalf of all of us on the Scottish Widows investment team, we hope you find this issue helpful and please accept our best wishes for your health and wellbeing during these challenging times.