Investments Market Outlook Markets Notes from the Kitchen

TEAM’s Multi Asset Strategy – Looking to the Future

  • May 20, 2021
  • Craig Farley

(Cover Photo Source: Danielle MacInnes)

Background

Here at TEAM Asset Management, 2 core principles guide our aim of building a business that will be better tomorrow than it is today:

1) Holding ourselves to the highest standards of honesty and integrity.

2) A desire to deliver transparent, cost-effective access to our core capabilities, providing an opportunity for all generations to invest with confidence in their future.

An important facet of observing these principles is a constant reassessment of our range of products and services, to ensure that we provide solutions that deliver optimal outcomes for our clients.
Amongst many parameters, we look at the available investment opportunity set provided by market conditions, tolerances around the allocation of capital and risk, and whether we can more effectively leverage the breadth of expertise within our team to improve overall results.

Spotlight

Market conditions have changed dramatically since the last financial crisis. In light of these changes, we used the opportunity provided by the second COVID lockdown to reassess the effectiveness, both now and for the future, of our multi-asset strategy. The results of this process will enable us to offer an enhanced level of service and performance in the future, centred around our in-house capabilities and, collectively, over 100 years of experience of our professional team. We have streamlined TEAM’s multi-asset range and updated how we manage capital and risk.

Outcomes

‘Cautious’ no longer fits.

We have removed the ‘Cautious’ strategy from our core multi-asset range of solutions. We believe that a ‘Cautious’ strategy indicates a client’s desire to have the safety of a cash deposit, but with cash-plus returns. Whilst there is nothing wrong with this objective:

1) After a thirty-year cycle of declines, interest rates have reached their nadir, and are likely to rise in the future.

2) Bonds, the traditional mainstay of Cautious portfolios, face the very real prospect of capital declines, and rising yields.

3) Other assets, which provide the type of returns commensurate with those previously enjoyed by bonds, involve significantly higher levels of capital risk.

To have a chance of reproducing the types of cash-plus return traditionally associated with a Cautious strategy, the level of risk one is now required to take with one’s capital is no longer low. For this reason, attempting to meet a Cautious objective is no longer advisable, nor indeed, viable, given the future economic and market outlook.

(For more on our prevailing outlook for fixed interest markets,

https://www.teamassetmanagement.com/news-and-reports/post/thinking-unthinkable).

Streamlining our asset allocation menu

TEAM’s core asset allocation model now comprises five major asset classes: Bonds, Alternative Income, Equities, Real Assets and Cash. (In light of our previous comments, Alternative Income assets are preferred, given their likely risk and return characteristics, over traditional fixed interest content).

Below is the latest asset and sector allocation within TEAM’s core model:

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The above asset classes provide the blueprint for TEAM’s range of Balanced and Growth Strategies going forward. Variances in allocation arise as a function of different mandate objectives, but the opportunity set between the two strategies is identical. How we make decisions to allocate between asset classes and instruments will be the focus of a further paper.

Impact

Within our range of services, we will utilise the TEAM International Equity Fund as a building block of our equity allocation, leveraging our in-house expertise which draws upon the collective experience, and successful track records, in managing equity mandates in funded or bespoke format.

Outside of this we allocate, wherever possible and appropriate, to actively managed, high conviction funds (or vehicles) that correspond with our investment philosophy and approach. Our ultimate objective is to deliver multi-asset investment outcomes that correlate as closely as possible, regardless of one’s notional investment size.

Client Outcomes

We believe that this approach offers a range of distinct and wide-reaching benefits for clients old and new:

1) A distinct, transparent opportunity set.

2) Outcomes that leverage TEAM’s in-house investment capability, namely asset allocation, bonds and bond proxy experience, and equity investing in a global context.

3) Solutions which are driven by an objective, data-driven approach, rather than emphasis on subjectivity and individual ‘flair’.

4) Most importantly, we believe that this puts client outcomes and service squarely front and centre.

The changes we are making represent our forward-thinking approach to a rapidly evolving economic and market outlook. We look forward to sharing further content and insights in the future.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.