Multi-Asset Solutions

This is no ordinary team

Asset allocation is the most important decision an investor can make. Many years ago in a European hotel lobby, an elegant solution was devised to help some of the world’s largest institutional investors balance multiple, often-competing investment objectives. This formula has been memorialised on a notepad and sits framed in our Singapore office today.

We balance risk and reward to deliver objective-based investing

Meet Kej Somaia

At home in the kitchen, Kej Somaia knows that a tried and tested recipe can always be enhanced by working together and using quality ingredients – and it’s no different in the investment world. Whether seasoning a diversified fund with a pinch of equities or introducing commodities, he and his team put in the extra thought to finding the right balance of flavours for the current market conditions. 

Asset allocation is not set and forget

Over the past 40 years, strategic asset allocation has successfully relied on diversification alone to deliver strong long-term returns. With the diversification benefits historically delivered by equities and bonds weakening in today’s markets, and expected returns across all asset classes falling lower, portfolios need to adapt to deliver on their objectives.

Do not expect the same dynamics going forward

Equities valuations have only been higher twice before in the last 100 years, in 2000 and 1929. Based on these valuations, history indicates that expected returns over the next 5 to 10 years will be much lower.

Source: Robert Shiller, Yale University, data to 30 June 2019. Price-Earnings Ratio (lhs) is the US equity valuations are based on the cyclically adjust price earnings ratio, or CAPE (Shiller PE). Long-Term Interest Rates (rhs) is the 10 year US treasury yields, or equivalent long term rate.

The market expects returns to fall across all major asset classes over the next 5 years

Source: Bloomberg and First Sentier Investors proprietary models. These are expected returns based on internal assumptions as at 30 June 2019. They are predictive in nature and therefore not guaranteed to occur. Known or unknown risks and uncertainties and inaccurate assumptions may result in them differing materially from results ultimately achieved.

It pays to be dynamic

Asset allocation must be dynamic to thrive in today’s markets. We invest based on the relative attractiveness of each asset class, dynamically shifting our positions to take advantage of market opportunities and to minimise risks in our portfolio.

For example, our equity exposure has ranged from 55% to just 17% to meet our return objective of 4.5% above inflation (before fees) over rolling 5 year periods.

Asset allocation over time

Growth of a $10,000 investment

Source: First Sentier Investors. Performance is net of fees as at 31 July 2019. Past performance is not an indicator of future performance. 
The CFS Multi-Asset Real Return Fund name will be changed to reflect the new brand name in mid-2020. It will be referred to as the Fund on this webpage.
Bond markets are predicting a recession while equities markets suggest the cycle will continue. 2020 could prove who is right, but until then, we focus on positioning our portfolios to deliver on their objectives.
Kej Somaia
Co-Head of Multi-Asset Solutions

A different take on markets in 2019

Kej Somaia shares the drivers of recent performance in the Fund, and how the flexibility of the process will help navigate the opportunities ahead.