Asbjørn Trolle Hansen believes investors need to steer clear of making macro calls this year
Many investors will not look back at 2016 with much fondness. It was a volatile year in markets - highlighted by the global growth scare, the fallout from the UK's Brexit vote and the unexpected victory for Donald Trump. After many years of a largely benign investment environment, volatility certainly reared its head once again.
But despite this volatility, the multi-asset universe has surprisingly been able to deliver a positive performance. A primary reason for this can be attributed to the strong recovery in commodity markets - as many multi-asset strategies take directional bets on the asset class.
However, this is a dangerous game to play for many risk-aware multi-asset investors. While this strategy worked in 2016, making a high-risk directional call on commodity markets has proven to be an extremely difficult market to repeatedly judge correctly. In fact, allocation to these volatile assets has not been beneficial on a long-term view.
However, even with the strong rally for commodities, a number of high-profile multi-asset strategies suffered sharp downside in 2016. This is no surprise, considering the continued temptation for many managers to make major asset allocation decisions based on macro calls on well-analysed events.
The last 18 months have been rife with volatility and event risk, starting with the summer of 2015 - with fears surrounding Greece and the China hard landing scare. Additional bouts of severe risk-aversion in 2016 - namely further concerns surrounding global growth in January and the UK's unexpected decision to exit the EU in June - created challenges for investors.
The market also experienced severe disruption on the surprise US election victory of Donald Trump. Again, many funds within the multi-asset universe could not provide the much-needed and often-promised true diversification for capital protection.
The landscape is unlikely to change materially this year, with politics remaining a key event risk - highlighted by elections in the Netherlands, France and Germany. Again, some investors will not be able to avoid the temptation to position in favour of an expected result. However, as was witnessed with the UK referendum and US elections, this is a dangerous game to play - as polls, and bookmakers alike, can often be wrong.
Most investors look to multi-asset funds for consistent returns through a cycle, as well as the ability to protect precious downside. Therefore, questions must be asked of those multi-asset funds that rely on repeatedly making correct macro calls and positioning portfolios accordingly.
Volatility and event risk have always been and will continue to be a feature of investment markets. We believe the role of multi-asset managers is to deliver a portfolio providing true diversification. This is not simply about piling into numerous asset classes, but rather the identification of a select number truly uncorrelated positions able to deliver for investors through most market environments.
With volatility here to stay, if we had to make one call for 2017 it would be for investors to learn the lessons of 2016 and avoid the temptation to make macro calls.
Asbjørn Trolle Hansen is manager of the Nordea 1 - GBP Diversified Return Fund
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